SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549


FORM
      10-KSB




x
      Annual Report Pursuant
      to Section 13 or 15(d) of the Securities Exchange Act of 1934




For
      the
      fiscal year ended: December 31, 2006




o
      Transition Report
      Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934




For
      the
      transition period from ______________to ______________




Commission
      File Number 000-51432




CHARDAN
      SOUTH CHINA ACQUISITION CORPORATION


(Name
      of
      Small Business Issuer in Its Charter)




Delaware
              (State
                of Incorporation)
            20-2479786
              (Small
                Business Issuer
              Employer
                I.D. Number)





625
                Broadway, Suite 1111, San Diego, California
              (Address
                of principal executive offices)
            92101
              (zip
                code)




(619)
      795-4627


(Issuer’s
      Telephone Number, Including Area Code)




Securities
      registered pursuant to Section 12(b) of the Act:


None




Securities
      registered pursuant to Section 12(g) of the Act:


(1)
      Units
      consisting of one share of Common Stock, par value $0.0001 per
      share,


and
      two
      Warrants Common Stock, $0.0001 par value per share


(2)
      Common Stock, $0.0001 par value per share


(3)
      Warrants to purchase shares of Common Stock




Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. o




Check
      whether the issuer (1) has filed all reports required to be filed by Section
      13
      or 15(d) of the Exchange Act during the past 12 months (or for such shorter
      period that the registrant was required to file such reports), and (2) has
      been
      subject to such filing requirement for the past 90 days. Yes x No
      o




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of the registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. x




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule12b-2
      of the Exchange Act). Yes x No
      o




Issuer’s
      revenues for the fiscal year ended December 31, 2006 were $0.




As
      of
      April 13, 2007, the aggregate market value of the common stock held by
      non-affiliates of the Registrant was approximately $33,637,500.









As
      of
      April 13, 2007, there were 7,000,000 shares of Common Stock, $.0001 par
      value per share, outstanding.




Transitional
      Small Business Disclosure Format (check one): Yes o No
      x




2


PART
      I




ITEM
      1.
      DESCRIPTION OF BUSINESS




Chardan
      South China Acquisition Corporation is a blank check company that was formed
      on
      March 10, 2005 to effect a merger, capital stock exchange, asset acquisition
      or
      other similar business combination with an operating business that has its
      primary operating facilities located in the People’s Republic of China in any
      city or province south of the Yangtze River.




In
      August
      2005, we closed our initial public offering of 5,750,000 units, including
      750,000 units issued upon exercise of the underwriters’ over-allotment option,
      with each unit consisting of one share of our common stock and two warrants,
      each to purchase one share of our common stock at an exercise price of $5.00
      per
      share. The units were sold at an offering price of $6.00 per unit, generating
      gross proceeds of $34,500,000. After deducting the underwriting discounts and
      commissions and the offering expenses, the total net proceeds to us from the
      offering were approximately $30,943,052, of which $29,835,000 was deposited
      into
      a trust fund and the remaining proceeds (approximately $1,108,052) became
      available to be used to provide for business, legal and accounting due diligence
      on prospective business combinations and continuing general and administrative
      expenses. Through December 31, 2006, we have used approximately $912,000 of
      the
      net proceeds that were not deposited into the trust fund in its operating
      activities. The net proceeds deposited into the trust fund remain on deposit
      in
      the trust fund earning interest. As of December 31, 2006, there was $31,294,931
      held in the trust fund.




We
      are
      not presently engaged in, and we will not engage in, any substantive commercial
      business until we consummate a business combination. We intend to utilize our
      cash, including the funds held in the trust fund, capital stock, debt or a
      combination of the foregoing in effecting a business combination. A business
      combination may involve the acquisition of, or merger with, a company which
      does
      not need substantial additional capital but which desires to establish a public
      trading market for its shares, while avoiding what it may deem to be adverse
      consequences of undertaking a public offering itself. These include time delays,
      significant expense, compliance with various Federal and state securities laws
      and the uncertainty of being able to raise the desired capital after expending
      considerable resources on the public offering process. In the alternative,
      we
      may seek to consummate a business combination with a company that may be
      financially unstable or in its early stages of development or growth.




Opportunities
      for market expansion have emerged for businesses with operations in China due
      to
      changes in the PRC’s political, economic and social policies as well as certain
      fundamental changes affecting the PRC and its neighboring countries. We believe
      that China represents both a favorable environment for making acquisitions
      and
      an attractive operating environment for a target business for several reasons,
      including:




·
            prolonged
                economic expansion within China, including gross domestic product
                growth
                of approximately 9% on average over the last 25 years with forecasted
                continued growth for at least the next several
                years;




·
            attractive
                valuations for target businesses within China;




·
            increased
                government focus within China on privatizing assets, improving foreign
                trade and encouraging business and economic activity;




·
            favorable
                labor rates and efficient, low-cost manufacturing capabilities;




·
            the
                entry of China into the World Trade Organization, the sole global
                international organization dealing with the rules of trade between
                nations, which may lead to a reduction on tariffs for industrial
                products,
                a reduction in trade restrictions and an increase in trading with
                the
                United States; and




·
            the
                fact that China’s public equity markets are not as well developed and
                active as the equity markets within the United States and are
                characterized by companies with relatively small market capitalizations
                and low trading volumes.




We
      believe that these factors and others should enable us to acquire a target
      business with growth potential on favorable terms.




3




**Recent
      Developments**




*Purchase
      Agreement for Proposed Business Combination*




On
        April
        14, 2007 we entered into a stock purchase agreement to acquire all of the
        issued
        and outstanding ordinary shares of Head Dragon Holdings, Limited, which owns
        a
        controlling interest in Liaoning GaoKe Energy Group (“GaoKe”). GaoKe is a
        provider of distributed power generation and micro power grids in China.
        There
        remain several conditions to the closing of the transaction to acquire GaoKe,
        including, but not limited to, the issuance of a final audit report showing
        earnings for the fiscal year ended 2006 of not less than $6 million, as well
        as
        the customary conditions regarding the accuracy of representations and
        warranties and deliveries to be made. Other conditions include the approval
        of
        our stockholders of an amendment to our certificate of incorporation allowing
        us
        to enter into a business combination with a company with principal operations
        north of the Yangtze River and approval by our stockholders of the transaction
        itself.
 
 Under
        the
        agreement with Mr. Lv Jin Xiang, the sole shareholder of Head Dragon Holdings,
        Limited, we will acquire all of his stock in exchange for 13,000,000 of the
        common shares of our merger subsidiary, China Energy Technology, Limited
        (“CETL”), a British Virgin Islands company formed for the purpose of changing
        our domicile from Delaware to the British Virgin Islands.
 
 As
        additional purchase price, the holders of the Head Dragon ordinary shares
        will
        be issued, on an all or none basis each year, an aggregate of 9,000,000 ordinary
        shares of CETL, as set forth below, if on a consolidated basis CETL has net
        operating profits on a U.S. GAAP basis of the following amounts for the
        indicated fiscal years ending December 31:
  Fiscal
                  Year
              After-Tax
                  Profit
              Number
                  of Shares2007
              $14,000,000
              1,000,0002008
              $19,000,000
              1,000,0002009
              $29,000,000
              1,000,0002010
              $44,000,000
              2,000,0002011
              $63,000,000
              2,000,0002012
              $87,000,000
              2,000,000


As
      noted
      above, our corporate charter specifies that we are to enter into a business
      combination with a business that has its principal operations south of the
      Yangtze River. GaoKe is based in Shenyang, Liaoning Province, which is north
      of
      the Yangtze River. We elected to engage in a business combination with GaoKe
      despite that because we believed that GaoKe represented the best opportunity
      for
      us and would produce the greatest benefits for our stockholders of the
      businesses that we evaluated. In order to consummate the combination with GaoKe,
      we will need to amend our certificate of incorporation, which will require
      the
      majority vote of our stockholders. We plan on seeking stockholder approval
      for
      the amendment promptly after entering into a definitive agreement with GaoKe.
      That stockholder vote will not involve approval of the business combination
      with
      GaoKe, only an amendment to our certificate of incorporation that will allow
      us
      to enter into a business combination with a company that has its principal
      operations north of the Yangtze River.




Assuming
      that our stockholders approve the amendment to our certificate of incorporation
      permitting us to enter into a business combination with a company whose
      principal operations are north of the Yangtze River, we expect the transaction
      with GaoKe will be consummated in the second half of 2007, after the required
      approval by our stockholders. Had we not entered into the agreement in principle
      to combine with GaoKe on or before February 10, 2007, our certificate of
      incorporation required us to begin dissolution of the company. The entry into
      the agreement in principle to acquire GaoKe on January 31, 2007 extended
      the time for completing a business combination until August 10, 2007. We will
      assess the progress that we are making toward completion of our transaction
      with
      GaoKe, including the date by which we enter into a definitive agreement and
      receive the necessary audited financial information from them. Should it appear
      likely that the completion of the business combination with GaoKe will not
      be
      completed by August 10, 2007, we will seek permission from our stockholders
      to
      extend the time for doing so. Such an extension will require an amendment to
      our
      certificate of incorporation, and our plan would be to solicit stockholder
      approval of that change at the same time we seek their approval to permit us
      to
      combine with a business that has its principal operations north of the Yangtze
      River.




Our
      stockholders will vote on the proposed amendment of our certificate of
      incorporation after we have distributed to them proxy solicitation materials
      prepared in accordance with applicable SEC requirements.




However,
      unless otherwise indicated the remainder of this Annual Report on Form 10-KSB
      assumes that the foregoing transaction is not consummated and that we must
      seek
      a different business combination.




*Selection
      of a target business and structuring of a business combination*




Target
      business candidates were brought to our attention from various unaffiliated
      sources, including investment bankers, venture capital funds and other members
      of the U.S. and Chinese financial communities, who presented solicited and
      unsolicited proposals. Our officers and directors as well as their affiliates
      also identified and brought target business candidates to our attention. We
      have
      engaged, and may again in the future engage, professional firms that specialize
      in business acquisitions to assist us in our search for a target business.
      If we
      do, we may be required to pay such firm a finder’s fee or other compensation. In
      no event, however, will we pay any of our initial officers, directors or
      stockholders (collectively, our “Founders”) or any entity with which they are
      affiliated any finder’s fee or other compensation for services rendered to us
      prior to or in connection with the consummation of a business combination.




Except
      for the requirement that the target business must have its primary operating
      facilities located in China in any city or province south of the Yangtze River,
      a limitation which, as noted, we intend to seek stockholder approval to remove,
      our management has virtually unrestricted flexibility in identifying and
      selecting a prospective target business. In evaluating prospective target
      businesses, our management considered, among other factors, the following:




·
            financial
                condition and results of operation;




4




·
            growth
                potential;




·
            experience
                and skill of management and availability of additional personnel;




·
            capital
                requirements;




·
            competitive
                position;




·
            barriers
                to entry;




·
            stage
                of development of the products, processes or services;




·
            degree
                of current or potential market acceptance of the products, processes
                or
                services;




·
            proprietary
                features and degree of intellectual property or other protection
                of the
                products, processes or services;




·
            regulatory
                environment of the industry; and




·
            costs
                associated with effecting the business combination.




These
      criteria are not intended to be exhaustive. Any evaluation relating to the
      merits of a particular business combination was based, to the extent relevant,
      on the above factors as well as other considerations deemed relevant by our
      management in effecting a business combination consistent with our business
      objective. In evaluating prospective target businesses, we conduct due diligence
      reviews which encompassed, among other things, meetings with incumbent
      management and inspection of facilities, as well as review of financial and
      other information made available to us. Our due diligence reviews were more
      extensive for the group of candidates that went beyond the preliminary stage,
      and we are continuing the due diligence process with regard to
      GaoKe.




Fair
      Market Value of Target Business




The
      initial target business that we acquire must have a fair market value equal
      to
      at least 80% of our net assets at the time of such acquisition. The fair market
      value of such business will be determined by our board of directors based upon
      standards generally accepted by the financial community, such as actual and
      potential sales, earnings and cash flow and book value. If our board elects,
      it
      may obtain an opinion from an unaffiliated, independent investment banking
      firm
      with respect to the satisfaction of such criteria.




Opportunity
      for stockholder approval of business combination




Assuming
      that we enter into a definitive agreement with GaoKe and receive stockholder
      approval to conduct a business combination with a business located north of
      the
      Yangtze River, we will submit the proposed business combination transaction
      with
      GaoKe to our stockholders for approval, even if the nature of the acquisition
      is
      such as would not ordinarily require stockholder approval under applicable
      state
      law. In connection with the approval, we will furnish our stockholders with
      proxy solicitation materials prepared in accordance with the Securities Exchange
      Act of 1934, which, among other matters, will include a description of the
      operations of the target business and audited historical financial statements
      of
      the business. Those proxy materials will likely be contained in a Form S-4
      registration statement, which is used for the registration of securities issued
      in connection with a business combination such as the one contemplated.




In
      connection with the vote required for any business combination, our Founders
      have agreed to vote their respective shares of common stock owned by them
      (“Founder Shares”) in accordance with the vote of the majority of the shares of
      our common stock sold in the initial public offering (“IPO Shares”). We will
      proceed with the business combination only if a majority of the outstanding
      shares are voted in favor of the business combination and stockholders holding
      less than 20% of the IPO Shares exercise their conversion rights.




5




Conversion
      rights




At
      the
      time we seek stockholder approval of the initial business combination, we will
      offer the holders of IPO Shares the right to have those shares converted to
      cash
      if the stockholder votes against the business combination, requests conversion
      and the business combination is approved and completed. The actual per-share
      conversion price will be equal to the amount in the trust fund, inclusive of
      any
      interest, as of the record date for determination of stockholders entitled
      to
      vote on the business combination, divided by the total number of IPO Shares.
      Any
      request for conversion, once made, may be withdrawn at any time up to the date
      of the meeting. We anticipate that the funds to be distributed to stockholders
      entitled to convert their shares who elect conversion will be distributed
      promptly after completion of a business combination. We will not complete any
      business combination if stockholders owning 20% or more of the IPO Shares
      exercise their conversion rights.




Liquidation
      if no business combination




Unless,
      as described above, our stockholders approve an amendment to our certificate
      of
      incorporation extending the time for doing so, if we do not complete a business
      combination by August 10, 2007, we will be dissolved and will distribute to
      all
      holders of IPO Shares, in proportion to the number of IPO Shares held by them,
      an aggregate sum equal to the amount in the trust fund, inclusive of any
      interest, plus any remaining net assets. The Founders have waived their rights
      to participate in any liquidation distribution with respect to their Founder
      Shares. There will be no distribution from the trust fund with respect to our
      warrants. Upon notice from us, the trustee of the trust fund will commence
      liquidating the investments constituting the trust fund and will turn over
      the
      proceeds to our transfer agent for distribution to our stockholders.




The
      proceeds deposited in the trust fund could become subject to the claims of
      our
      creditors which could be prior to the claims of our public stockholders. Dr.
      Richard D. Propper, our chief financial officer and a member of our board of
      directors, and Kerry Propper, our chief executive officer and a member of our
      board of directors, has each agreed that, if we liquidate prior to the
      consummation of a business combination, each will be personally liable to pay
      debts and obligations to vendors or other entities that are owed money by us
      for
      services rendered or products sold to us, or to any target business, in excess
      of the net proceeds of our initial public offering not held in the trust
      account.




**Competition**




In
      identifying, evaluating and selecting a target business, we encountered
      competition from other entities having a business objective similar to ours.
      Many of these entities are well established and have extensive experience
      identifying and effecting business combinations directly or through affiliates.
      Many of these competitors possess greater technical, human and other resources
      than us and our financial resources will be relatively limited when contrasted
      with those of many of these competitors. While we believe there are numerous
      potential target businesses that we could acquire, our ability to compete in
      acquiring certain sizable target businesses will be limited by our available
      financial resources. This inherent competitive limitation gives others an
      advantage in pursuing the acquisition of a target business. Further:




·
            our
                obligation to seek stockholder approval of a business combination
                may
                delay the completion of a transaction;




·
            our
                obligation to convert into cash shares of common stock held by our
                public
                stockholders in certain instances may reduce the resources available
                to us
                for a business combination; and




·
            our
                outstanding warrants and options, and the future dilution they potentially
                represent, may not be viewed favorably by certain target
                businesses.




Any
      of
      these factors may place us at a competitive disadvantage in successfully
      negotiating a business combination. Our management believes, however, that
      our
      status as a public entity and potential access to the United States public
      equity markets may give us a competitive advantage over privately-held entities
      having a similar business objective as us in acquiring a target business with
      significant growth potential on favorable terms.




If
      we
      succeed in effecting a business combination, the combined company will be,
      in
      all likelihood, subject to intense competition in the PRC and elsewhere. We
      cannot assure you that, subsequent to a business combination, we will have
      the
      resources or ability to compete effectively.




6




**Government
      regulations**




Government
      regulations relating to acquisition transactions




On
      September 8, 2006, the Ministry of Commerce of the PRC, in conjunction with
      several other government agencies, promulgated a comprehensive set of
      regulations governing the process by which a Chinese company must secure
      approval to participate in an acquisition of its assets or its equity interests
      and by which a Chinese company may obtain public trading of its securities
      on a
      securities exchange outside the PRC (the “M&A Regulations”). The new
      regulations have largely centralized the approval process that had formerly
      been
      carried out by a combination of provincial and central government agencies
      within the Ministry of Commerce (MOFCOM), the State Administration of Industry
      and Commerce (SAIC), the State Administration of Foreign Exchange (SAFE) or
      its
      branch offices, the State Asset Supervision and Administration Commission,
      and
      the China Securities Regulatory Commission (CSRC) and also expanded the scope
      of
      the prior regulations.




Depending
      on the structure of the acquisition transaction, these M&A Regulations may
      require the Chinese parties of the acquisition transaction to make a series
      of
      applications and supplemental applications to the aforementioned agencies,
      some
      of which must be made within strict time limits and require approvals from
      one
      or the other of the aforementioned agencies. The application process has been
      supplemented to require the presentation of economic data concerning a
      transaction, including appraisals of the business to be acquired and valuation
      of the acquiror to permit the government to assess the fairness of the economics
      of a transaction in addition to its compliance with legal requirements. If
      obtained, approvals will have expiration dates by which a transaction must
      be
      completed. Also, completed transactions must be reported to MOFCOM and some
      of
      the other agencies within a short period after closing or be subject to an
      unwinding of the transaction.




It
      is
      expected that compliance with the M&A Regulations will be more time
      consuming than in the past, will be more costly for the Chinese parties and
      will
      permit the Chinese government much more extensive evaluation and control over
      the terms of the transaction. Therefore, it may not be possible to complete
      certain acquisitions in China because the terms of the transaction may not
      satisfy the criteria used in the approval process or, even if approved, if
      they
      are not consummated within the time permitted by the approvals granted.




The
      M&A Regulations have introduced aspects of economic and substantive analysis
      of the target business and the acquiror and the terms of the transaction by
      MOFCOM and the other governing agencies by requiring submission of an appraisal
      report, an evaluation report and the acquisition agreement, all of which form
      part of the application for approval. The regulations also prohibit a
      transaction at an acquisition price that is obviously lower than the appraised
      value of the Chinese business or assets. The regulations require that in certain
      transaction structures, the consideration must be paid within strict time
      periods, generally not in excess of one year. Because the Chinese authorities
      have expressed concern with offshore transactions which converted domestic
      companies into foreign investment enterprises (FIEs), the new regulations
      require that there be new foreign-sourced capital of not less than 25% of the
      domestic company’s post-acquisition registered capital in order to obtain FIE
      treatment. In asset transactions, there must be no harm to third parties or
      the
      public interest as a result of the allocation of assets and liabilities being
      assumed or acquired. These aspects of the regulations may limit our ability
      to
      negotiate various terms of an acquisition, including aspects of the initial
      consideration, contingent consideration, holdback provisions, indemnification
      provisions and provisions relating to the assumption and allocation of assets
      and liabilities. Therefore, in any future business combinations or acquisitions
      of Chinese companies, we may not be able to negotiate a transaction with terms
      that will satisfy both the requirements of the Chinese regulations and protect
      our stockholders’ interests.




The
      M&A Regulations give the approving agencies authority to restrict foreign
      ownership of Chinese domestic companies engaged in “important industries.” The
      regulatory agencies have some discretion in determining whether a Chinese
      company fits within that category, but among the transactions that may be
      subject to these restrictions are those involving companies whose acquisition
      by
      foreign interests may affect national economic security or result in the
      transfer of “actual control” of companies having “famous Chinese brand names” or
“well established Chinese brand names.” The M&A Regulations also provide for
      antitrust review for certain large transactions or transactions involving large
      companies, as well as roll-up transactions with the same effect in the relevant
      Chinese market. In addition, certain mergers and acquisitions among foreign
      companies occurring outside of the PRC could also be subject to antitrust review
      in China similar to those done under United States anti-trust law concepts.
      The
      regulations use criteria related to economic aspects of the parties or markets
      involved to determine if a transaction is subject to scrutiny, including any
      one
      of the following: level of sales or assets within China, control of 20% or
      more
      of the Chinese market on a pre-transaction basis, or control of 25% or more
      of
      the Chinese market as a result of the transaction. Exemptions may be sought
      from
      the MOFCOM and SAIC on the basis that: (i) the transaction will improve market
      competition, (ii) the transaction will restructure unprofitable entities and
      ensure employment, (iii) the transaction will introduce high technologies and
      increase international competitiveness, and (iv) the transaction will improve
      the environment.




7




The
      M&A Regulations set forth many specific requirements, but there are still
      many ambiguities in the meaning of many provisions that will be resolved only
      as
      practices and standards under the regulations develop. Further regulations
      are
      anticipated in the future, but until there has been clarification either by
      pronouncements, regulation or practice, there is some uncertainty in the scope
      of the regulations and the manner in which they will apply, and the effect
      that
      they will have, on any particular transaction. Moreover, the ambiguities allow
      the regulators wide latitude in the enforcement of the regulations and in
      determining the transactions to which they may or may not apply. Therefore,
      we
      cannot predict with certainty the extent to which the regulations will apply
      to
      any future proposed business combination for the growth of our operations or
      the
      nature of the impact that they will have on the proposed business combination.




At
      this
      point we have conducted a preliminary analysis to determine whether the M&A
      Regulations pose any material concerns for our completion of a business
      combination of GaoKe. Based on that preliminary evaluation, we do not believe
      that the proposed transaction, which involves the acquisition of stock of a
      Hong
      Kong company (Head Dragon Holdings Limited) that was organized prior to the
      effective date of the M&A Regulations, will be materially
      adversely affected by M&A Regulations.




Government
      regulations relating to taxation




Under
      the
      PRC’s current tax laws, regulations and rulings, companies providing certain
      services, assigning intangible assets or selling immovable property are subject
      to a business tax at a rate ranging from 3% to 20% of the charges of the
      services provided, intangible assets assigned or immovable property sold, as
      the
      case may be. According to the Applicable Foreign Enterprises Tax Law, income
      such as dividends and profits distribution from the PRC derived from a foreign
      enterprise which has no establishment in the PRC is subject to a 10% withholding
      tax, subject to reduction as provided by any applicable double taxation treaty,
      unless the relevant income is specifically exempted from tax under the
      Applicable Foreign Enterprises Tax Law. The profit derived by a foreign investor
      from a PRC enterprise is currently exempted from PRC tax according to the
      Applicable Foreign Enterprises Tax Law. However, if this exemption were to
      be
      removed in the future, we might be required to deduct certain amounts from
      dividends we may pay to our stockholders following a business combination to
      pay
      corporate withholding taxes.




**Employees**




We
      have
      four executive officers, each of whom is a member of our board of directors.
      These individuals are not obligated to contribute any specific number of hours
      to our matters and intend to devote only as much time as they deem necessary
      to
      our affairs. The amount of time they devote in any time period will vary based
      on the availability of suitable target businesses to investigate. We do not
      intend to have any full time employees prior to the consummation of a business
      combination.




**Risks
      associated with our business**




In
      addition to other information included in this report, the following factors
      should be considered in evaluating our business and future
      prospects.




*We
      are a development stage company with no operating history and very limited
      resources.*




We
      are a
      recently incorporated development stage company with no operating results to
      date. Since we do not have an operating history, you will have no basis upon
      which to evaluate our ability to achieve our business objective, which is to
      acquire an operating business that has its primary operating facilities located
      in the PRC in any city or province south of the Yangtze River. We will not
      generate any revenues until, at the earliest, after the consummation of a
      business combination.




*If
      third parties bring claims against us, the proceeds held in trust could be
      reduced and the per-share liquidation price received by stockholders will be
      adversely affected.*




Our
      placing of funds in trust may not protect those funds from third party claims
      against us. The proceeds held in trust could be subject to claims which could
      take priority over the claims of our public stockholders. If we liquidate before
      the completion of a business combination, Dr. Richard D. Propper, our chief
      financial officer, and Kerry Propper, our chief executive officer and a member
      of our board of directors, will be personally liable under certain circumstances
      to ensure that the proceeds in the trust fund are not reduced by the claims
      of
      various vendors or other entities that are owed money by us for services
      rendered or products sold to us. However, we cannot assure you that these
      individuals will be able to satisfy those obligations.




8




*We
      may incorrectly ascertain the merits or risks of the business’ operations with
      which we enter into an acquisition agreement.*




To
      the
      extent we complete a business combination with a financially unstable company
      or
      an entity in its development stage, we may be affected by numerous risks
      inherent in the business operations of those entities. Although our management
      will endeavor to evaluate the risks inherent in a particular target business
      or
      industry, we cannot assure you that we will properly ascertain or assess all
      of
      the significant risk factors. We also cannot assure you that an investment
      in
      our securities will not ultimately prove to be less favorable than a direct
      investment, if an opportunity were available, in a target business.




*We
      may issue shares of our common stock and preferred stock to complete a business
      combination, which would reduce the equity interest of our stockholders and
      likely cause a change in control of our ownership.*




Our
      certificate of incorporation authorizes the issuance of up to 20,000,000 shares
      of common stock, par value $.0001 per share, and 1,000,000 shares of preferred
      stock, par value $.0001 per share. We will, in all likelihood, issue a
      substantial number of additional shares of our common stock or preferred stock,
      or a combination of common and preferred stock, to complete a business
      combination and have to increase our capitalization as a result. The issuance
      of
      additional shares of our common stock or any number of shares of our preferred
      stock:




·
            may
                significantly reduce the equity interest of stockholders;




·
            will
                likely cause a change in control if a substantial number of our shares
                of
                common stock are issued, which may affect, among other things, our
                ability
                to use our net operating loss carry forwards, if any, and most likely
                also
                result in the resignation or removal of our present officers and
                directors; and




·
            may
                adversely affect prevailing market prices for our common
                stock.




Similarly,
      if we issue debt securities, it could result in:




·
            default
                and foreclosure on our assets if our operating revenues after a business
                combination were insufficient to pay our debt obligations;




·
            acceleration
                of our obligations to repay the indebtedness even if we have made
                all
                principal and interest payments when due if the debt security contains
                covenants that require the maintenance of certain financial ratios
                or
                reserves and any such covenant is breached without a waiver or
                renegotiation of that covenant;




·
            our
                immediate payment of all principal and accrued interest, if any,
                if the
                debt security is payable on demand; and




·
            our
                inability to obtain additional financing, if necessary, if the debt
                security contains covenants restricting our ability to obtain additional
                financing while such security is
                outstanding.




*We
      would be required to dissolve if we do not obtain stockholder approval of an
      amendment to our certificate of incorporation to allow us to enter into a
      business combination with a company that has its principal operations north
      of
      the Yangtze River.*




Our
      certificate of incorporation requires us to commence dissolving the Company
      if
      we do not complete a business combination by August 10, 2007. Our certificate
      of
      incorporation also specifies that we are to enter into a business combination
      with a business that has its principal operations south of the Yangtze River.
      In
      January 2007 we entered into an Agreement in Principle to acquire GaoKe, but
      GaoKe is based north of the Yangtze River. In order to consummate the
      combination with GaoKe, we will need to amend our certificate of incorporation
      to allow us to enter into a business combination with a company that has its
      principal operations north of the Yangtze River, which will require the majority
      vote of our stockholders. If our stockholders do not approve the amendment
      to
      our certificate of incorporation, then we will not be able to complete the
      business combination transaction with GaoKe. If we do not complete the business
      combination transaction and are required to commence dissolving the Company,
      our
      stockholders will likely receive less than the price they paid for their
      shares.




9




*We
      would be required to dissolve if we cannot complete the acquisition of GaoKe
      by
      August 10, 2007 or obtain stockholder approval for an extension of the
      dissolution date.*




Our
      certificate of incorporation requires us to commence dissolving the Company
      if
      we do not complete a business combination by August 10, 2007. To complete that
      business combination, we must obtain requisite approval of our stockholders;
      and
      to solicit stockholder approval, we must distribute proxy materials prepared
      in
      accordance with the Securities Exchange Act of 1934. If we expect that we will
      not be able to complete the business combination transaction with GaoKe by
      the
      August 10, 2007 deadline, we will likely seek stockholder approval to extend
      that deadline. If we do not complete the business combination transaction by
      the
      deadline (as it may be extended), our stockholders will likely receive less
      than
      the price they paid for their shares.




*It
      is
      likely that most or all of our current officers and directors will resign upon
      consummation of a business combination and we will have only limited ability
      to
      evaluate the management of the target business.*




Our
      ability to successfully effect a business combination will be totally dependent
      upon the efforts of our key personnel. The future role of our key personnel
      in
      the target business, however, cannot presently be ascertained. Although it
      is
      possible that some of our key personnel will remain associated in various
      capacities with the target business following a business combination, it is
      likely that the management of the target business at the time of the business
      combination will remain in place. Although we intend to closely scrutinize
      the
      management of a prospective target business in connection with evaluating the
      desirability of effecting a business combination, we cannot assure you that
      our
      assessment of management will prove to be correct.




*Our
      officers and directors may allocate their time to other businesses thereby
      causing conflicts of interest in their determination as to how much time to
      devote to our affairs. This could have a negative impact on our ability to
      consummate a business combination.*




Our
      officers and directors are not required to commit their full time to our
      affairs, which may result in a conflict of interest in allocating their time
      between our operations and other businesses. We do not intend to have any full
      time employees prior to the consummation of a business combination. All of
      our
      executive officers are engaged in several other business endeavors and are
      not
      obligated to contribute any specific number of hours to our affairs. If our
      executive officers’ other business affairs require them to devote more
      substantial amounts of time to such affairs, it could limit their ability to
      devote time to our affairs and could have a negative impact on our ability
      to
      consummate a business combination.




*Our
      officers and directors are affiliated with entities engaged in business
      activities similar to those intended to be conducted by us and, accordingly,
      may
      have conflicts of interest in determining which entity a particular business
      opportunity should be presented to.*




Our
      officers and directors are affiliated with entities, including other “blank
      check” companies, engaged in business activities similar to those intended to be
      conducted by us. Additionally, our officers and directors may become aware
      of
      business opportunities which may be appropriate for presentation to us as well
      as the other entities to which they have fiduciary obligations. Accordingly,
      they may have conflicts of interest in determining to which entity a particular
      business opportunity should be presented. We cannot assure you that these
      conflicts will be resolved in our favor.




*All
      of our officers and directors own shares of our common stock which will not
      participate in liquidation distributions and therefore they may have a conflict
      of interest in determining whether a particular target business is appropriate
      for a business combination.*




All
      of
      our officers and directors own stock in our company, but have waived their
      right
      to receive distributions upon our liquidation. The shares and warrants owned
      by
      our directors and officers will be worthless if we do not consummate a business
      combination. The personal and financial interests of our directors and officers
      may influence their motivation in identifying and selecting a target business
      and completing a business combination timely. Consequently, our directors’ and
      officers’ discretion in identifying and selecting a suitable target business may
      result in a conflict of interest when determining whether the terms, conditions
      and timing of a particular business combination are appropriate and in our
      stockholders’ best interest.




*It
      is
      probable that we will consummate a business combination with a single operating
      business. Accordingly, the prospects for our success may be:*




·
            solely
                dependent upon the performance of a single business, or




·
            dependent
                upon the development or market acceptance of a single or limited
                number of
                products, processes or services.




10




In
      this
      case, we will not be able to diversify our operations or benefit from the
      possible spreading of risks or offsetting of losses, unlike other entities
      which
      may have the resources to complete several business combinations in different
      industries or different areas of a single industry.




*Because
      of our limited resources and the significant competition for business
      combination opportunities, we may not be able to consummate a business
      combination with growth potential.*




We
      expect
      to encounter competition from other entities having a business objective similar
      to ours, including venture capital funds, leveraged buyout funds and operating
      businesses competing for acquisitions in the PRC. Many of these entities are
      well established and have extensive experience in identifying and effecting
      business combinations directly or through affiliates. Many of these competitors
      possess greater technical, human and other resources than we do and our
      financial resources will be relatively limited when contrasted with those of
      many of these competitors. While we believe that there are numerous potential
      target businesses that we could acquire, our ability to compete in acquiring
      certain sizable target businesses will be limited by our available financial
      resources. This inherent competitive limitation gives others an advantage in
      pursuing the acquisition of certain target businesses. Further, the obligation
      we have to seek stockholder approval of a business combination may delay the
      consummation of a transaction, and our obligation to convert into cash the
      shares of common stock held by public stockholders in certain instances may
      reduce the resources available for a business combination. Additionally, our
      outstanding warrants, and the future dilution they potentially represent, may
      not be viewed favorably by certain target businesses. Any of these obligations
      may place us at a competitive disadvantage in successfully negotiating a
      business combination.




*We
      may be unable to obtain additional financing, if required, to complete a
      business combination or to fund the operations and growth of the target
      business, which could compel us to restructure the transaction or abandon a
      particular business combination.*




Although
      we believe our current assets will be sufficient to allow us to consummate
      a
      business combination, if we require further funds, either because of the size
      of
      the business combination or the depletion of our available cash in search of
      a
      target business, or because we become obligated to convert into cash a
      significant number of shares from dissenting stockholders, we will be required
      to seek additional financing. We cannot assure you that such financing would
      be
      available on acceptable terms, if at all. To the extent that additional
      financing proves to be unavailable when needed to consummate a particular
      business combination, we would be compelled to restructure the transaction
      or
      abandon that particular business combination and seek an alternative target
      business candidate. In addition, if we consummate a business combination, we
      may
      require additional financing to fund the operations or growth of the target
      business. The failure to secure additional financing could have a material
      adverse effect on the continued development or growth of the target business.
      None of our officers, directors or stockholders is required to provide any
      financing to us in connection with or after a business combination.




*Our
      existing stockholders, including our officers and directors, control a
      substantial interest in us and thus may influence certain actions requiring
      stockholder vote.*




Our
      board
      of directors is divided into three classes, each of which will generally serve
      for a term of three years with only one class of directors being elected in
      each
      year. It is unlikely that there will be an annual meeting of stockholders to
      elect new directors prior to the consummation of a business combination, in
      which case all of the current directors will continue in office at least until
      the consummation of the business combination. If there is an annual meeting,
      as
      a consequence of our “staggered” board of directors, only a minority of the
      board of directors will be considered for election and our existing
      stockholders, because of their ownership position, will have considerable
      influence regarding the outcome. Accordingly, our existing stockholders will
      continue to exert considerable control at least until the consummation of a
      business combination.




*Our
      outstanding warrants may have an adverse effect on the market price of common
      stock and make it more difficult to effect a business combination.*




We
      currently have outstanding warrants to purchase 11,500,000 shares of common
      stock and an option to purchase a total of 250,000 shares of common stock and
      warrants to purchase an additional 500,000 shares of common stock. To the extent
      we issue shares of common stock to effect a business combination, the potential
      for the issuance of substantial numbers of additional shares upon exercise
      of
      these warrants and options could make us a less attractive acquisition vehicle
      in the eyes of a target business as such securities, when exercised, will
      increase the number of issued and outstanding shares of our common stock and
      reduce the value of the shares issued to complete the business combination.
      Accordingly, our warrants and options may make it more difficult to effectuate
      a
      business combination or increase the cost of the target business. Additionally,
      the sale, or even the possibility of sale, of the shares underlying the warrants
      and options could have an adverse effect on the market price for our securities
      or on our ability to obtain future public financing. If and to the extent these
      warrants and options are exercised, there will be dilution to the holders of
      the
      common stock.




11




*If
      we
      are unable to effect a business combination and are forced to liquidate, our
      warrants will expire worthless.*




If
      we do
      not complete a business combination by August 10, 2007, we will be dissolved
      and
      will distribute to all holders of IPO Shares, in proportion to the number of
      IPO
      Shares held by them, an aggregate sum equal to the amount in the trust fund,
      inclusive of any interest, plus any remaining net assets. In such event, there
      will be no distribution with respect to our outstanding warrants. Accordingly,
      the warrants will expire worthless.




*If
      our Founders exercise their registration rights, it may have an adverse effect
      on the market price of our common stock and the existence of these rights may
      make it more difficult to effect a business combination.*




Our
      Founders are entitled to demand that we register the resale of their shares
      of
      common stock at any time after the date on which their shares are released
      from
      escrow. If our Founders exercise their registration rights with respect to
      all
      of their shares of common stock, then there will be an additional 1,250,000
      shares of common stock eligible for trading in the public market. The presence
      of this additional number of shares of common stock eligible for trading in
      the
      public market may have an adverse effect on the market price of our common
      stock. In addition, the existence of these rights may make it more difficult
      to
      effectuate a business combination or increase the cost of the target business,
      as the stockholders of the target business may be discouraged from entering
      into
      a business combination with us or will request a higher price for their
      securities as a result of these registration rights and the potential future
      effect their exercise may have on the trading market for our common
      stock.




*Our
      securities are quoted on the OTC Bulletin Board, which limits the liquidity
      and
      price of our securities.*




Our
      securities are traded on the OTC Bulletin Board, an NASD-sponsored and operated
      inter-dealer automated quotation system for equity securities not included
      on
      The Nasdaq Stock Market. Quotation of our securities on the OTC Bulletin Board
      limits the liquidity and price of our securities more than if our securities
      were quoted or listed on The Nasdaq Stock Market or a national
      exchange.




*If
      we
      are deemed to be an investment company, we may be required to institute
      burdensome compliance requirements and our activities may be restricted, which
      may make it difficult for us to complete a business combination.*




If
      we are
      deemed to be an investment company under the Investment Company Act of 1940,
      our
      activities may be restricted, including:




·
            restrictions
                on the nature of our investments; and




·
            restrictions
                on the issuance of securities,




which
      may
      make it difficult for us to complete a business combination.




In
      addition, we may have imposed upon us burdensome requirements,
      including:




·
            registration
                as an investment company;




·
            adoption
                of a specific form of corporate structure; and




·
            reporting,
                record keeping, voting, proxy and disclosure requirements and other
                rules
                and regulations.




We
      do not
      believe that our anticipated principal activities will subject us to the
      Investment Company Act of 1940. To this end, the proceeds held in trust may
      only
      be invested by the trust agent in “government securities” with specific maturity
      dates. By restricting the investment of the proceeds to these instruments,
      we
      intend to meet the requirements for the exemption provided in Rule 3a-1
      promulgated under the Investment Company Act of 1940. If we were deemed to
      be
      subject to that act, compliance with these additional regulatory burdens would
      require additional expense that we have not budgeted.




12




***Risks
      associated with our acquisition of a target business in the
      PRC.***




*If
      the PRC does not continue its policy of economic reforms, it could, among other
      things, result in an increase in tariffs and trade restrictions on products
      we
      ultimately produce or sell following a business combination.*




The
      PRC
      government has been reforming its economic system since the late 1970s. The
      economy of the PRC has historically been a nationalistic, “planned economy,”
meaning it has functioned and produced according to governmental plans and
      pre-set targets or quotas. However, in recent years, the PRC government has
      implemented measures emphasizing the utilization of market forces for economic
      reform and the reduction of state ownership in business enterprises. We cannot
      predict the timing or extent of any future economic reforms that may be
      proposed.




*If
      relations between the United States and the PRC deteriorate, it could cause
      potential target businesses or their goods or services to become less
      attractive.*




The
      relationship between the United States and the PRC is subject to sudden
      fluctuation and periodic tension. In the recent past the United States has
      announced its intention to impose quotas on various Chinese imports, which
      may
      be extended for several years. Such import quotas may adversely affect political
      relations between the two countries and result in retaliatory countermeasures
      by
      the PRC in industries that may affect our ultimate target business. Relations
      may also be compromised if the U.S. becomes a more vocal advocate of Taiwan
      or
      proceeds to sell certain military weapons and technology to Taiwan. Changes
      in
      political conditions in the PRC and changes in the state of Sino-U.S. relations
      are difficult to predict and could adversely affect our operations or cause
      potential target businesses or their goods and services to become less
      attractive. Because we are not limited to any specific industry, there is no
      basis for investors in this offering to evaluate the possible extent of any
      impact on our ultimate operations if relations are strained between the PRC
      and
      the United States.




*If
      the PRC imposes restrictions to reduce inflation, future economic growth in
      the
      PRC could be severely curtailed, which could lead to a significant decrease
      in
      our profitability following a business combination.*




While
      the
      economy of the PRC has experienced rapid growth, this growth has been uneven
      among various sectors of the economy and in different geographical areas of
      the
      country. Rapid economic growth can lead to growth in the supply of money and
      rising inflation. If prices for the products of our ultimate target business
      rise at a rate that is insufficient to compensate for the rise in the costs
      of
      supplies, it may have an adverse effect on profitability. In order to control
      inflation in the past, the PRC has imposed controls on bank credits, limits
      on
      loans for fixed assets and restrictions on state bank lending. If similar
      restrictions are imposed, it may lead to a slowing of economic growth. Because
      we are not limited to any specific industry, the ultimate industry that we
      operate in may be affected more severely by such a slowing of economic
      growth.




*Any
      devaluation of currencies used in the PRC could negatively impact our target
      business’ results of operations and cause the cost of a target business as
      measured in dollars to increase.*




Because
      our objective is to acquire a target business having its primary operating
      facilities located in the PRC, and because substantially all revenues and income
      would be received in a foreign currency such as Renminbi, the main currency
      used
      in the PRC, the dollar equivalent of our net assets and distributions, if any,
      would be adversely affected by reductions in the value of the Renminbi. The
      value of the Renminbi fluctuates and is affected by, among other things, changes
      in the PRC’s political and economic conditions. The conversion of Renminbi into
      foreign currencies such as the dollar has been generally based on rates set
      by
      the People’s Bank of China, which are set daily based on the previous day’s
      interbank foreign exchange market rates and current exchange rates on the world
      financial markets. However, any devaluation may materially and adversely affect
      a target business. If the Renminbi appreciates in value against the dollar
      prior
      to the consummation of a business combination, the cost of a target business
      as
      measured in dollars will increase.




*Because
      Chinese law will govern almost all of any target business material agreements,
      we may not be able to enforce our rights within the PRC or elsewhere, which
      could result in a significant loss of business, business opportunities or
      capital.*




Chinese
      law will govern almost all of our target business’ material agreements, many of
      which may be with Chinese governmental agencies. We cannot assure you that
      the
      target business will be able to enforce any of its material agreements or that
      remedies will be available outside of the PRC. The system of laws and the
      enforcement of existing laws in the PRC may not be as certain in implementation
      and interpretation as in the United States. The Chinese judiciary is relatively
      inexperienced in enforcing corporate and commercial law, leading to a higher
      than usual degree of uncertainty as to the outcome of any litigation. The
      inability to enforce or obtain a remedy under any of our future agreements
      could
      result in a significant loss of business, business opportunities or capital.




13




After
      the
      consummation of a business combination, substantially all of our assets and
      most
      of our directors and officers will be located outside of the United States.
      As a
      result, it may not be possible for investors in the United States to enforce
      their legal rights, to effect service of process upon our directors or officers
      or to enforce judgments of United States courts predicated upon civil
      liabilities and criminal penalties of our directors and officers under Federal
      securities laws. Moreover, we have been advised that the PRC does not have
      treaties providing for the reciprocal recognition and enforcement of judgments
      of courts with the United States. Further, it is unclear if extradition treaties
      now in effect between the United States and the PRC would permit effective
      enforcement of criminal penalties of the Federal securities laws.




*Many
      industries in China are subject to government regulations that limit or prohibit
      foreign investments in such industries, which may limit the potential number
      of
      acquisition candidates.*




The
      Chinese government has imposed regulations in various industries that would
      limit foreign investors’ equity ownership or prohibit foreign investments
      altogether in companies that operate in such industries. As a result, the number
      of potential acquisition candidates available to us may be limited.




*If
      the United States imposes trade sanctions on the PRC due to its current currency
      policies, our target business’ ability to succeed in the international markets
      may be diminished.*




Trade
      groups in the United States have blamed the cheap value of the Chinese currency
      for causing job losses in American factories, giving exporters an unfair
      advantage and making its imports expensive. If Congress deems this to be the
      case, tariffs would be imposed on Chinese imports in addition to those already
      in force. If an additional tariff is imposed, it is possible that China-based
      companies will no longer maintain significant price advantages over foreign
      companies, including the United States, on their goods and
      services.




ITEM
      2.
      DESCRIPTION OF PROPERTY




We
      maintain our executive offices at 625 Broadway, Suite 1111, San Diego,
      California pursuant to an agreement with Chardan Ventures LLC, an affiliate
      of
      Dr. Richard D. Propper, our chief financial officer, and Jiangnan Huang and
      Zhang Li, our chairman of the board and executive vice president, respectively,
      and each a member of our board of directors. We pay Chardan Ventures a monthly
      fee of $7,500, which is for general and administrative services including office
      space, utilities and secretarial support. We believe, based on rents and fees
      for similar services in the San Diego metropolitan area, that the fee charged
      by
      Chardan Ventures is at least as favorable as we could have obtained from an
      unaffiliated person. We consider our current office space adequate for our
      current operations.




ITEM
      3.
      LEGAL PROCEEDINGS




None.




ITEM
      4.
      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS




None.




14




PART
      II




ITEM
      5.
      MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS




Market
      Information




Our
      units, common stock and warrants are traded on the Over-the-Counter Bulletin
      Board under the symbols CSCAU, CSCA and CSCAW respectively. The following table
      sets forth the range of high and low closing bid prices for the units, common
      stock and warrants for the periods indicated since such units commenced public
      trading on August 3, 2005 and since such common stock and warrants
      commenced public trading on August 31, 2005. The over-the-counter market
      quotations reflect inter-dealer prices, without retail mark-up, mark-down or
      commission and may not necessarily reflect actual transactions.




Common
                Stock
            
            Warrants
            
            UnitsHigh
            
            Low
            
            High
            
            Low
            
            High
            
            Low2005:Third
                Quarter (beginning August 3, 2005)
            
            $
            5.25
            
            $
            5.15
            
            $
            1.05
            
            $
            0.70
            
            $
            7.30
            
            $
            6.15Fourth
                Quarter
            
            $
            5.75
            
            $
            5.15
            
            $
            1.50
            
            $
            0.95
            
            $
            8.80
            
            $
            7.112006:First
                Quarter
            
            $
            9.05
            
            $
            5.58
            
            $
            4.50
            
            $
            1.45
            
            $
            11.10
            
            $
            8.25Second
                Quarter
            
            $
            8.75
            
            $
            6.25
            
            $
            3.95
            
            $
            1.70
            
            $
            17.20
            
            $
            15.95Third
                Quarter
            
            $
            6.55
            
            $
            5.44
            
            $
            1.75
            
            $
            1.26
            
            $
            10.00
            
            $
            8.30Fourth
                Quarter
            
            $
            6.41
            
            $
            5.85
            
            $
            1.65
            
            $
            1.27
            
            $
            9.50
            
            $
            8.50




As
      of
      April 13, 2007, there were 49 holders of record of our units, 161
      holders of record of our common stock and 218 holders of record of our
      warrants. We believe the beneficial holders of the units, common stock and
      warrants to be in excess of 400 persons each.




Dividends




We
      have
      not paid any dividends on our common stock to date and do not intend to pay
      dividends prior to the completion of a business combination. The payment of
      dividends in the future will be contingent upon our revenues and earnings,
      if
      any, capital requirements and general financial condition subsequent to
      completion of a business combination. The payment of any dividends subsequent
      to
      a business combination will be within the discretion of our then board of
      directors. It is the present intention of our board of directors to retain
      all
      earnings, if any, for use in our business operations and, accordingly, our
      board
      does not anticipate declaring any dividends in the foreseeable future.




Initial
      Public Offering




In
      August
      2005, we closed our initial public offering of 5,750,000 units, including
      750,000 units issued upon exercise of the underwriters’ over-allotment option,
      with each unit consisting of one share of our common stock and two warrants,
      each to purchase one share of our common stock at an exercise price of $5.00
      per
      share. The units were sold at an offering price of $6.00 per unit, generating
      gross proceeds of $34,500,000. The representative of the underwriters in the
      offering was EarlyBirdCapital, Inc. The securities sold in the offering were
      registered under the Securities Act of 1933 on a registration statement on
      Form
      S-1 (No. 333-125018).




We
      paid a
      total of $3,035,000 in underwriting discounts and commissions, and approximately
      $521,948 was paid for costs and expenses related to the offering. After
      deducting the underwriting discounts and commissions and the offering expenses,
      the total net proceeds to us from the offering were approximately $30,943,052,
      of which $29,835,000 was deposited into a trust fund and the remaining proceeds
      (approximately $1,108,052) became available to be used to provide for business,
      legal and accounting due diligence on prospective business combinations and
      continuing general and administrative expenses. The net proceeds deposited
      into
      the trust fund and the interest earned on the proceeds remain on deposit in
      the
      trust fund.




Information
      regarding other expenses incurred for the year ended December 31, 2006
      appears following Item 6 of this Report.




15




ITEM
      6.
      MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION




We
      were
      formed on March 10, 2005 to serve as a vehicle to effect a merger, capital
      stock
      exchange, asset acquisition or other similar business combination with an
      operating business that has its primary operating facilities located in the
      People's Republic of China south of the Yangtze River. We intend to utilize
      cash
      derived from the proceeds of our recently completed public offering, our capital
      stock, debt or a combination of cash, capital stock and debt, in effecting
      a
      business combination.




We
      consummated our initial public offering on August 10, 2005. All of our activity
      from March 10, 2005 through August 10, 2005 related to our formation and our
      initial public offering.




We
      incurred a net income of $49,430 for the year ended December 31, 2006, as
      compared to a net income of $68,769 for the year ended December 31, 2005. Our
      total costs and expenses, all of which were related to our formation,
      maintenance of our corporate status and efforts to find and evaluate target
      businesses, were approximately $678,259 for the year ended December 31, 2006,
      as
      compared to $233,500 for the year ended December 31, 2005, consisting
      principally of the following: travel and entertainment expenses, consulting
      fees, directors and officers liability insurance, amounts paid to a related
      party under a monthly administrative services agreement, professional fees,
      state franchise taxes and miscellaneous expenses.




Those
      expenses were offset by interest income of $832,680 for the year ended December
      31, 2006 and $347,913 for the year ended December 31, 2005 on the trust fund
      investments and funds outside the trust fund, excluding deferred interest.




$29,835,000
      of the net proceeds of our initial public offering was placed in trust, reserved
      for the following: (a) distribution to the persons holding stock issued in
      our
      initial public offering upon their exercise of dissenter’s rights in connection
      with a proposed transaction or upon liquidation of our company in the event
      that
      we do not conclude a business combination within the time allowed by our
      certificate of incorporation; (b) as consideration in completing a business
      combination; or (c) as working capital for use by the acquired business.




The
      balance of the funds raised in our public offering, net of the offering
      expenses, was approximately $1,108,052. This amount was available to pay for
      business, legal, accounting and due diligence expenses relating to prospective
      acquisitions and for continuing general and administrative expenses. We expect
      to use most, if not all, of the net proceeds of our initial public offering
      not
      held in trust to identify and evaluate prospective acquisition candidates,
      select the target business and to structure, negotiate and consummate the
      business combination. To the extent that we do not use all of those funds for
      those purposes, they will remain available for the same purposes as the funds
      held in trust.




At
      December 31, 2006, the trust fund contained $31,294,931, compared to $30,260,861
      at December 31, 2005, which included interest earned on the funds since the
      date
      of our public offering. At December 31, 2006, outside of the trust fund we
      had
      current assets of $160,161, consisting of cash of $147,063 and prepaid expenses
      of $13,098, offset by total current liabilities of $604,074, leaving us with
      a
      working capital deficiency outside of the trust of $(443,913). At December
      31,
      2005, outside of the trust fund we had current assets of $961,297 consisting
      of
      cash of $912,964, and prepaid expenses of $48,333, offset by total current
      liabilities of $305,294, leaving us with working capital outside of the trust
      of
      $656,093. We do not have sufficient funds available outside the trust fund
      to
      operate before we can consummate a business combination, so we intend to
      supplement our working capital through borrowings.




Commencing
      in August 2005, we became obligated to pay to Chardan Capital, LLC a monthly
      fee
      of $7,500 for general and administrative services. We will remain obligated
      to
      pay that fee until we consummate a business combination or until we liquidate
      the company.




We
      borrowed $80,000 from two of our initial stockholders on a non-interest bearing
      basis to cover certain of our offering expenses that we were obligated to pay
      prior to the time that proceeds of our public offering were available. These
      amounts were repaid in August 2005 out of proceeds of our initial public
      offering.




**Critical
      Accounting Policies**




Cash
      and
      Cash Equivalents




16




For
      financial statement purposes, we consider all highly liquid debt instruments
      with a maturity of three months or less when purchased to be cash equivalents.
      We maintain our cash in bank deposit accounts in the United States of America
      which, at times, may exceed applicable insurance limits. We have not experienced
      any losses in such accounts. We believe we are not exposed to any significant
      credit risk on cash and cash equivalents.




Investments
      Held in Trust




Investments
      held in trust are invested in United States government securities (Treasury
      Bills) with a maturity of 180 days or less which are accounted for as a trading
      security and recorded at market value which approximates amortized cost. The
      amount held in the trust fund was $31,294,931 at December 31, 2006, compared
      to
      $30,260,861 at December 31, 2005. The excess of market value over cost,
      exclusive of the deferred interest described below, is included in interest
      income in the accompanying Statement of Operations.




Deferred
      Interest




Deferred
      interest consists of 19.99% of the interest earned on the investments held
      in
      trust, which is the maximum amount of interest we would be obligated to pay
      to
      stockholders who elected to redeem their stock without resulting in a rejection
      of the proposed transaction with GaoKe.




Income
      Taxes




We
      account for income taxes using the asset and liability method, as prescribed
      by
      Statement of Financial Accounting Standards No. 109 "Accounting for Income
      Taxes". Under the asset and liability method, deferred tax assets and
      liabilities are recognized for the future tax consequences attributable to
      differences between the financial statement carrying amounts of existing assets
      and liabilities and their respective tax bases, and operating loss and tax
      credit carryforwards. Deferred tax assets and liabilities are measured using
      enacted tax rates expected to apply to taxable income in the years in which
      those temporary differences are expected to be recovered or settled. The effect
      on deferred tax assets and liabilities of a change in tax rates is recognized
      in
      income in the period that includes the enactment date. Statutory taxes not
      based
      on income are included in general and administrative expenses.




**Off-Balance
      Sheet Arrangements**




Warrants
      and representative’s unit purchase option issued in conjunction with our initial
      public offering are equity linked derivatives and accordingly represent off
      balance sheet arrangements. In addition, the conversion feature of the
      representative’s unit purchase option constitutes an embedded derivative. The
      warrants, unit purchase option and conversion feature meet the scope exception
      in paragraph 11(a) of FAS 133 and are accordingly not accounted for as
      derivatives for purposes of FAS 133, but instead are accounted for as equity.
      See Footnote 5 to the financial statements for more
      information.




ITEM
      7.
      FINANCIAL STATEMENTS




This
      information appears following Item 14 of this Report and is incorporated herein
      by reference.




ITEM
      8.
      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.




None.




ITEM
      8A.
      CONTROL AND PROCEDURES




An
      evaluation of the effectiveness of our disclosure controls and procedures as
      of
      December 31, 2006 was made under the supervision and with the participation
      of
      our management, including our chief executive officer and chief financial
      officer. Based on that evaluation, they concluded that our disclosure controls
      and procedures are effective as of the end of the period covered by this report
      to ensure that information required to be disclosed by us in reports that we
      file or submit under the Securities Exchange Act of 1934 is recorded, processed,
      summarized and reported within the time periods specified in Securities and
      Exchange Commission rules and forms. Since our inception through December 31,
      2006, there were no significant changes in our internal controls over financial
      reporting that has materially affected, or is reasonably likely to materially
      affect our internal controls over financial reporting.




17




ITEM
      8B.
      OTHER INFORMATION




On
        April
        14, 2007, we entered into a Stock Purchase Agreement to acquire all of the
        issued and outstanding ordinary shares of Head Dragon Holdings, Limited.
        That
        agreement is discussed in more detail in Part I, Item 1.
  On
        April
        16, 2007, we entered into a Warrant Clarification Agreement to clarify the
        terms
        of the Warrant Agreement dated as of August 2, 2005 (the "Warrant
        Agreement") by and between Chardan South China Acquisition Corporation (“Chardan
        South”) and Continental Stock Transfer & Trust Company, as Warrant
        Agent.
  On
        April
        16, 2007, Chardan South and EarlyBirdCapital, Inc. entered into an amendment
        to
        the Unit Purchase Option issued in connection with the August 2005 initial
        public offering of Chardan South.
  Both
        the
        Warrant Clarification Agreement and the amendment to the Unit Purchase Option,
        which are filed as exhibits to this Form 10-KSB, clarify that (i) if a
        registration statement covering the securities issuable upon the exercise
        of a
        warrant or the Unit Purchase Option was not effective at the time a holder
        desired to exercise the instrument, then the warrant or Unit Purchase Option
        could expire unexercised, and (ii) in no event would Chardan South be obligated
        to pay cash or other consideration to the holders of the warrants or the
        purchase option or "net-cash settle" the obligations of Chardan South under
        either agreement.


18




PART
      III




ITEM
      9.
      DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
      SECTION 16(a) OF THE EXCHANGE ACT.




Directors
      and Executive Officers




Our
      current directors and executive officers are as follows:




Name
            
            Age
            
            PositionJiangnan
                Huang
            
            56
            
            Chairman
                of the Board of DirectorsKerry
                Propper
            
            31
            
            Chief
                Executive Officer and DirectorDr.
                Richard D. Propper
            
            59
            
            Chief
                Financial Officer, Secretary and DirectorLi
                Zhang
            
            53
            
            Executive
                Vice President and Director





***Jiangnan
      Huang*** has been
      our chairman of the board of directors since our inception and has been the
      chairman of the board of directors of Chardan North China Acquisition
      Corporation since its inception. Mr. Huang has also served as the chief
      executive officer and a member of the board of directors of Chardan China
      Acquisition Corp. since its inception in December 2003. Mr. Huang has also
      served as a member and manager of Chardan Capital, LLC since August 2003. Mr.
      Huang has been a senior advisor to CITIC Securities, a Chinese broker dealer,
      with principal responsibility for its large international investment banking
      projects, since October 2002. He has also held a number of other senior
      positions in Chinese financial companies, including his tenure as president
      of
      Hong Kong Southern Capital Financial Group and director and general manager
      of
      Hong Kong Southern Capital Securities Co., Ltd. from July 2000 to October 2002.
      From October 1997 until July 2000, he also served in a number of capacities
      with
      China Everbright Securities Co., Ltd. (Hong Kong), including a role as chief
      investment officer of the China Everbright Growth Fund. Mr. Huang received
      an
      MBA from the China Social Sciences University in 1981, where he engaged in
      advanced study at The Regional Economic Research & Development Center at the
      United Nations.




***Kerry
      Propper*** ** has
      been
      our chief executive officer, secretary and a member of our board of directors
      since our inception and has been the chief executive officer and a member of
      the
      board of directors of Chardan North China Acquisition Corporation since its
      inception. Mr. Propper has also served as the executive vice president and
      a
      member of the board of directors of Chardan China Acquisition Corp. since its
      inception in December 2003. Mr. Propper has been the owner and chief executive
      officer of Chardan Capital Markets LLC, a New York based broker/dealer, since
      July 2003. He has also been a managing member of SUJG, Inc., an investment
      company since April 2005. Mr. Propper also sits on the board of directors of
      Source Atlantic Inc., a health care consulting firm based in Massachusetts.
      Mr.
      Propper was a founder, and from February 1999 to July 2003 owner and managing
      director of Windsor Capital Advisors, a full service brokerage firm also based
      in New York. Mr. Propper also founded The Private Capital Group LLC, a small
      private investment firm specializing in hard money loans and convertible
      preferred debt and equity offerings for small public companies, in May 2000
      and
      was affiliated with it until December 2003. From July 1997 until February 1999,
      Mr. Propper worked at Aegis Capital Corp., a broker dealer and member firm
      of
      the NASD. Mr. Propper received his B.A. (with honors) in Economics and
      International Studies from Colby College and studied at the London School of
      Economics. Kerry Propper is Dr. Propper’s son.




***Dr.
      Richard D. Propper*** ** has
      been
      our chief financial officer and a member of our board of directors since our
      inception and has been the chief financial officer and a member of the board
      of
      directors of Chardan North China Acquisition Corporation since its inception.
      He
      has also served as the chairman of the board of directors of Chardan China
      Acquisition Corp. since its inception in December 2003. In August 2003, he
      formed Chardan Capital, LLC, a venture capital management and financial
      strategic consulting firm based in Southern California, and has been one of
      its
      managers since its formation. During this time, Dr. Propper has been focused
      principally on building business relationships between Chinese and U.S.
      companies. From June 2002 to July 2003, Dr. Propper was chief executive officer
      and chairman of the board of Mera Pharmaceuticals, Inc., a public company that
      produces products from aquatic microorganisms. In 1984, he founded Montgomery
      Medical Ventures Funds, an early stage venture capital firm, and was the
      managing general partner until July 1993. He then pursued private investment
      activities from July 1993 until he formed Chardan Capital in August 2003. Dr.
      Propper received a B.S. from McGill University and an M.D. from Stanford
      University. He also spent ten years on the faculty of Harvard medical school
      as
      a research fellow and an assistant professor in pediatrics. Dr. Propper is
      the
      father of Kerry Propper, our chief financial officer and secretary.




19




***Li
      Zhang*** has been
      our executive vice president and a member of our board of directors since our
      inception and has been the executive vice president and a member of the board
      of
      directors of Chardan North China Acquisition Corporation since its inception.
      He
      has also served as chief financial officer and a member of the board of
      directors of Chardan China Acquisition Corp. since its inception in December
      2003. Mr. Zhang has also served as a member and manager of Chardan Capital,
      LLC
      since its inception in August 2003. Since September 2001, Mr. Zhang has been
      a
      principal and president of Pacific Asia Ventures, LLC, a company that provides
      strategic consulting services for Chinese-U.S. business relationships. Since
      September 2002, he has been an advisor to Mera Pharmaceuticals, Inc. Mr. Zhang
      has also been an advisor for Parentech, Inc., a company that produces products
      that enhance the development and well-being of infants, since December 2002.
      From January 1994 until September 2001, Mr. Zhang served as chairman of
      Sino-American Investment, Inc., an investment consulting firm. From September
      1996 until September 1998, Mr. Zhang also served as a consultant to the China
      Retail Fund, a venture capital fund that invests in retail ventures with backing
      from American International Group. Mr. Zhang has two decades of experience
      in
      establishing commercial and financial relationships between Chinese companies,
      government agencies and Western investors. Among his other affiliations during
      that time, he was chairman of Sino-American Power, Ltd., an organization formed
      for the purpose of building electric power generating plants in China, from
      1994
      through 1996. Mr. Zhang received a B.A. from the Shenyang Teacher’s University
      in the PRC.




Our
      board
      of directors is divided into three classes with only one class of directors
      being elected in each year and each class serving a three-year term. The term
      of
      office of the first class of directors, consisting of Li Zhang, will expire
      at
      our first annual meeting of stockholders. The term of office of the second
      class
      of directors, consisting of Dr. Richard Propper, will expire at the second
      annual meeting. The term of office of the third class of directors, consisting
      of Kerry Propper and Jiangnan Huang, will expire at the third annual
      meeting.




Audit
      Committee




Because
      we do not have any “independent” directors, the entire Board of Directors has
      acted as the Audit Committee. In connection with a business combination, the
      board of directors intends to cause the resulting entity to establish an
      appropriate audit committee within the guidelines of NASDAQ or one of the stock
      exchanges and the rules and regulations of the SEC and adopt a committee
      charter.




Code
      of
      Ethics




We
      have
      not adopted a formal code of ethics statement. The board of directors evaluated
      the business of the company and the number of employees and determined that
      since the business is largely limited to maintaining its cash investments while
      its searches for a target company and consummates an acquisition and the only
      persons acting for the company are the four directors who are also the officers
      of the company, general rules of fiduciary duty and federal and state securities
      laws provide adequate ethical guidelines for their conduct.




In
      connection with a business combination, the board of directors intends to cause
      the resulting entity to establish an appropriate code of ethics within the
      guidelines of NASDAQ or one of the stock exchanges and the rules and regulations
      of the SEC.




Stockholder-Director
      Communication




We
      have
      neither a nominating committee for persons to be proposed as directors for
      election to the board of directors nor a formal method of communicating the
      names of nominees from stockholders. We do not have any restrictions on
      stockholder nominations under our certificate of incorporation or by-laws other
      than advance notice to provide sufficient time for the board of directors to
      prepare the appropriate documentation under Delaware corporate law and the
      federal proxy rules. Currently the entire board of directors decides on
      nominees, on the recommendation of one or more members of the board. None of
      the
      members of the board of directors are “independent.” The board of directors will
      consider suggestions from individual stockholders, subject to evaluation of
      the
      person’s merits. Stockholders may communicate nominee suggestions directly to
      any of the board members, accompanied by biographical details and a statement
      of
      support for the nominees. The suggested nominee must also provide a statement
      of
      consent to being considered for nomination. Although there are no formal
      criteria for nominees, the board of directors believes that persons should
      be
      actively engaged in business endeavors, have a financial background, and be
      familiar with acquisition strategies and money management.




20




Because
      the management and directors of the company are the same persons, the board
      of
      directors has determined not to adopt a formal methodology for communications
      from stockholders on the belief that any communication would be brought to
      the
      board’s attention by virtue of the co-extensive employment.




The
      board
      of directors does not have a formal policy of attendance of directors at the
      annual meeting. It does encourage such attendance. The company did not have
      an
      annual meeting in 2005.




Section
      16(a) Beneficial Ownership Reporting Compliance




Section
      16(a) of the Securities Exchange Act of 1934 requires our officers, directors
      and persons who own more than ten percent of a registered class of our equity
      securities to file reports of ownership and changes in ownership with the
      Securities and Exchange Commission. Officers, directors and ten percent
      stockholders are required by regulation to furnish us with copies of all Section
      16(a) forms they file. Based solely on copies of such forms received or written
      representations from certain reporting persons that no Form 5s were required
      for
      those persons, we believe that, during the fiscal year ended December 31, 2005,
      all filing requirements applicable to our officers, directors and greater than
      ten percent beneficial owners were complied with.




ITEM
      10.
      EXECUTIVE COMPENSATION




Commencing
      August 2, 2005 and ending upon the acquisition of a target business, we are
      committed to pay Chardan Ventures a fee of $7,500 per month for providing us
      with office space and certain office and secretarial services. Other than this
      $7,500 per-month fee, no compensation of any kind, including finders and
      consulting fees, will be paid to any of our Founders or any of their respective
      affiliates, for services rendered prior to or in connection with a business
      combination. However, our Founders will be reimbursed for any out-of-pocket
      expenses incurred in connection with activities on our behalf such as
      identifying potential target businesses and performing due diligence on suitable
      business combinations.




Since
      our
      formation, we have not granted any stock options or stock appreciation rights
      or
      any awards under long-term incentive plans.




ITEM
      11.
      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT




The
      following table sets forth information regarding the beneficial ownership of
      our
      common stock as of December 31, 2006 by:




·
            each
                person known by us to be the beneficial owner of more than 5% of
                our
                outstanding shares of common stock;




·
            each
                of our officers and directors; and




·
            all
                our officers and directors as a
                group.




Unless
      otherwise indicated, we believe that all persons named in the table have sole
      voting and investment power with respect to all shares of common stock
      beneficially owned by them.




Name
                and Address of Beneficial Owner
            
            Amount
                and Nature
              of
                Beneficial
              Ownership
            
            Percent
                of
              ClassRichard
                D. Propper, M.D. (2)
            
            
            635,474
            
            
            9.0
            %Kerry
                Propper (3)
            
            
            312,500
            
            
            4.5
            %Li
                Zhang (4)
            
            
            151,013
            
            
            2.2
            %Jiangnan
                Huang
            
            
            151,013
            
            
            2.2
            %All
                directors and executive officers as a group (4
                individuals)
            
            
            1,250,000
            
            
            18
            %Jeffrey
                L. Feinberg (5)
            
            
            660,050
            
            
            9.43
            %Jack
                Silver (6)
            
            
            740,000
            
            
            10.6
            %






21




(1)
            Beneficial
                ownership has been determined in accordance with Rule 13d-3 under
                the
                Securities Exchange Act of 1934. Unless otherwise noted, we believe
                that
                all persons named in the table have sole voting and investment power
                with
                respect to all shares of our common stock beneficially owned by them.
                These amounts exclude shares issuable upon exercise of warrants that
                are
                not exercisable and are not expected to be exercisable within 60
                days of
                December 31, 2006.




(2)
              The
                  business address of Dr. Propper is 625 Broadway, Suite 111, San
                  Diego,
                  California 92101. The securities reported as held by Dr. Propper
                  represent
                  shares of Common Stock held by Chardan Capital Partners. These
                  amounts do
                  not include 122,100 shares of Common Stock issuable upon exercise
                  of
                  warrants, which are not currently exercisable and are not expected
                  to be
                  exercisable within 60 days of December 31,
                  2006.
  (3)
                Includes
                    90,500 shares of common stock held by SUJG, Inc., of which Mr.
                    Propper is
                    a director and as such controls the voting and disposition of
                    such shares.
                    These amounts do not include 84,600 shares of Common Stock issuable
                    upon
                    exercise of warrants, which are not currently exercisable and
                    are not
                    expected to be exercisable within 60 days of December 31,
                    2006.
  (4)
                  These
                      amounts do not include 37,500 shares of Common Stock issuable
                      upon
                      exercise of warrants, which are not currently exercisable and
                      are not
                      expected to be exercisable within 60 days of December 31,
                      2006.
  (5)
                    The
                        securities reported as held by Mr. Feinberg represent shares
                        of Common
                        Stock held by Mr. Feinberg in his personal account; JLF Partners
                        I, L.P.,
                        JLF Partners II, L.P. and JLF Off Shore Fund, Ltd. to which
                        JLF Asset
                        Management LLC serves as the management company and/or investment
                        manager.
                        Jeffrey L. Feinberg is the managing member of JLF Asset Management,
                        LLC.
                        The business address of Mr. Feinberg and these entities is
                        2775 Via de la
                        Valle, Suite 204, Del Mar, California 92014. This information
                        is derived
                        from a Schedule 13G/A filed by the above persons with the
                        SEC on February
                        13, 2007.
  (6)
                      The
                          business address of Mr. Silver is SIAR Capital LLC, 660
                          Madison Avenue,
                          New York, New York 10021. These shares include (i) 540,000
                          shares held by
                          Sherleigh Associates, Inc. profit sharing plan (“Sherleigh Profit”), a
                          trust of which Mr. Silver is the trustee, and 200,000 shares
                          held by
                          Sherleigh Associates, Inc., a defined benefit plan (“Sherleigh Defined”),
                          a trust of which Mr. Silver is the trustee, but exclude
                          (x) 670,000
                          shares issuable upon exercise of warrants held by Sherleigh
                          Profit which
                          provide that they may not be exercised until the consummation
                          of a
                          business combination and (y) 400,000 shares issuable upon exercise of
                          warrants held by Sherleigh Defined which provide that they
                          may not be
                          exercised until the consummation of a business combination.
                          Mr. Silver has
                          the sole voting and depositive power with respect to all
                          740,000 shares of
                          Common Stock beneficially owned by him. The foregoing information
                          is
                          derived from a Schedule 13G/A filed with the SEC on February
                          13,
                          2007.


None
      of
      the above stockholders has any voting rights that are different from the voting
      rights of any other stockholders.




All
      of
      the shares of our outstanding common stock owned by our Founders prior to our
      initial public offering have been placed in escrow with Continental Stock
      Transfer & Trust Company, as escrow agent, pursuant to an escrow agreement
      described below.




Dr.
      Richard D. Propper, Kerry Propper, Jiangnan Huang and Li Zhang may be deemed
      to
      be our “parents” and “promoters,” as these terms are defined under the Federal
      securities laws.




ITEM
      12.
      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS




In
      March
      2005, we issued 1,000,000 shares of our common stock to the individuals set
      forth below for $25,000 in cash, at a purchase price of $0.025 per share, as
      follows:




**Name**
            
            **Number
                of
                Shares**Jiangnan
              Huang
            
            
            120,810Kerry
              Propper
            
            
            177,600Li
              Zhang
            
            
            120,810Chardan
              Capital Partners
            
            
            508,380SUJG,
              Inc.
            
            
            72,400




22




Effective
      July 22, 2005, our board of directors authorized a stock dividend of 0.25 shares
      of common stock for each outstanding share of common stock, effectively lowering
      the purchase price to $0.02 per share.




The
      holders of the majority of these shares will be entitled to make up to two
      demands that we register these shares pursuant to a registration rights
      agreement. The holders of the majority of these shares can elect to exercise
      these registration rights at any time commencing three months prior to the
      date
      on which these shares of common stock are to be released from escrow. In
      addition, these stockholders have certain “piggy-back” registration rights with
      respect to registration statements filed subsequent to the date on which these
      shares of common stock are released from escrow. We will bear the expenses
      incurred in connection with the filing of any such registration
      statements.




Our
      directors and several individuals affiliated with companies they are associated
      with entered into letter agreements with the representative of the underwriters
      pursuant to which they agreed to purchase up to 1,000,000 warrants at prices
      not
      to exceed $0.75 per warrant during the 40-trading day period following separate
      trading of the warrants. A total of 220,000 warrants were purchased pursuant
      to
      these agreements. We have agreed that these warrants shall not be redeemable
      by
      us as long as such warrants continue to be held by such individuals or their
      affiliates. Because these individuals may be insiders, or affiliates of
      insiders, at the time of the redemption call, their ability to sell our
      securities in the open market will be significantly limited. If they remain
      insiders, we will have policies in place that prohibit insiders from selling
      our
      securities except during specific periods of time. Accordingly, unlike public
      stockholders who could, if we called the warrants for redemption, either sell
      their warrants or exercise such warrants and sell the shares of common stock
      received upon such exercise freely in the open market, the insiders would be
      significantly restricted from selling such securities. Additionally, even if
      the
      insiders could sell their securities, any sale by an insider would require
      him
      to file a Form 4 disclosing his sale and that would have a depressive effect
      on
      the price of our stock during the redemption period. As a result, we believe
      this non-call feature is appropriate.




Chardan
      Capital, LLC, an affiliate of Dr. Richard D. Propper, Li Zhang and Jiangnan
      Huang, has agreed that, through the acquisition of a target business, it will
      make available to us a small amount of office space and certain office and
      secretarial services, as we may require from time to time. We have agreed to
      pay
      Chardan Capital, LLC $7,500 per month for these services. Dr. Propper is
      president, a manager and 19.8% owner of Chardan Capital, LLC. Each of Li Zhang
      and Jiangnan Huang is a manager and 16.1% owner of Chardan Capital, LLC. As
      a
      result, they will benefit from the transactions to the extent of their interest
      in Chardan Capital, LLC. However, these arrangements are solely for the benefit
      of us and are not intended to provide Dr. Propper and Messrs. Zhang and Huang
      compensation in lieu of a salary. We believe, based on rents and fees for
      similar services in the San Diego metropolitan area, that the fee charged by
      Chardan Capital, LLC is at least as favorable as we could have obtained from
      an
      unaffiliated person. However, as our directors may not be deemed “independent,”
we did not have the benefit of disinterested directors approving this
      transaction.




Kerry
      Propper advanced to us $20,000 and Chardan Capital Partners has advanced to
      us
      $60,000 to cover expenses related to our initial public offering. The loans
      were
      payable without interest on the earlier of April 11, 2006 or the consummation
      of
      our initial public offering. We repaid these loans from the proceeds of our
      initial public offering not placed in trust.




We
      will
      reimburse our officers and directors for any reasonable out-of-pocket business
      expenses incurred by them in connection with certain activities on our behalf,
      such as identifying and investigating possible target businesses and business
      combinations. There is no limit on the amount of out-of-pocket expenses
      reimbursable by us, which will be reviewed only by our board or a court of
      competent jurisdiction if such reimbursement is challenged.




Other
      than the $7,500 per-month administrative fee and reimbursable out-of-pocket
      expenses payable to our officers and directors, no compensation or fees of
      any
      kind, including finders and consulting fees, will be paid to any of our existing
      stockholders, officers or directors who owned our common stock prior to this
      offering, or to any of their respective affiliates, for services rendered to
      us
      prior to or with respect to the business combination.




All
      ongoing and future transactions between us and any of our officers and directors
      or their respective affiliates, including loans by our officers and directors,
      will require prior approval in each instance by a majority of our uninterested
      “independent” directors (to the extent we have any) or the members of our board
      who do not have an interest in the transaction. These directors, if they
      determine to be necessary or appropriate, will have access, at our expense,
      to
      our attorneys or independent legal counsel. We will not enter into any such
      transaction unless our disinterested “independent” directors (or, if there are
      no “independent” directors, our disinterested directors) determine that the
      terms of such transaction are no less favorable to us than those that would
      be
      available to us with respect to such a transaction from unaffiliated third
      parties.




23




Pursuant
      to an escrow agreement between us, the Founders and Continental Stock Transfer
      & Trust Company, all of the Founders Shares were placed in escrow, with
      Continental acting as escrow agent, pursuant to an escrow agreement, until
      the
      earliest of:




·
            August
                10, 2008;




·
            our
                liquidation; or




·
            the
                consummation of a liquidation, merger, stock exchange or other similar
                transaction which results in all of our stockholders having the right
                to
                exchange their shares of common stock for cash, securities or other
                property subsequent to our consummating a business combination with
                a
                target business.




During
      the escrow period, these shares cannot be sold, but the Founders will retain
      all
      other rights as stockholders, including, without limitation, the right to vote
      their shares of common stock and the right to receive cash dividends, if
      declared. If dividends are declared and payable in shares of common stock,
      such
      dividends will also be placed in escrow. If we are unable to effect a business
      combination and liquidate, none of our Founders will receive any portion of
      the
      liquidation proceeds with respect to common stock owned by them prior to our
      initial public offering.




We
      also
      entered into a registration rights agreement with the Founders pursuant to
      which
      the holders of the majority of the Founders Shares will be entitled to make
      up
      to two demands that we register these shares. The holders of the majority of
      these shares may elect to exercise these registration rights at any time after
      the date on which these shares of common stock are released from escrow. In
      addition, these stockholders have certain “piggy-back” registration rights on
      registration statements filed subsequent to the date on which these shares
      of
      common stock are released from escrow. We will bear the expenses incurred in
      connection with the filing of any such registration statements.




Each
      of
      our Founders also entered into a letter agreement with us and EarlyBirdCapital
      pursuant to which, among other things:




·
            each
                agreed to vote all Founder Shares owned by him in accordance with
                the
                majority of the IPO Shares if we solicit approval of our stockholders
                for
                a business combination;




·
            if
                we fail to consummate a business combination by August 10, 2007,
                each
                agreed to take all reasonable actions within his power to cause us
                to
                liquidate as soon as reasonably practicable;




·
            each
                waived any and all rights he may have to receive any distribution
                of cash,
                property or other assets as a result of such liquidation with respect
                to
                his Founder Shares;




·
            each
                agreed to present to us for our consideration, prior to presentation
                to
                any other person or entity, any suitable opportunity to acquire an
                operating business, until the earlier of our consummation of a business
                combination, our liquidation or until such time as he ceases to be
                an
                officer or director of ours, subject to any pre-existing fiduciary
                obligations he might have;




·
            each
                agreed that we could not consummate any business combination which
                involves a company which is affiliated with any of the Founders unless
                we
                obtain an opinion from an independent investment banking firm reasonably
                acceptable to EarlyBirdCapital that the business combination is fair
                to
                our stockholders from a financial perspective;




·
            each
                agreed that he and his affiliates will not be entitled to receive
                and will
                not accept any compensation for services rendered to us prior to
                the
                consummation of our business combination; and




·
            each
                agreed that he and his affiliates will not be entitled to receive
                or
                accept a finder’s fee or any other compensation in the event he or his
                affiliates originate a business combination.




24




ITEM
      13.
      EXHIBITS




The
      following Exhibits are filed as part of this report.




Exhibit
                No.
            
            Description3.1*
            
            Certificate
                of Incorporation3.1.1*
            
            Certificate
                of Amendment to Certificate of Incorporation3.2*
            
            Bylaws4.4*
            
            Representative
                Unit Purchase Option4.5*
            
            Warrant
                Agreement with Continental Stock Transfer & Trust
                Company4.6
            
            Warrant
                Clarification Agreement with Continental Stock Transfer & Trust
                Company, dated April 16, 20074.7
            
            Amendment
                to Representative Unit Purchase Option10.7*
            
            Investment
                Management Trust Agreement with Continental Stock Transfer & Trust
                Company10.8*
            
            Form
                of Stock Escrow Agreement with Continental Stock Transfer & Trust
                Company and the Initial Stockholders10.9*
            
            Letter
                Agreement with Chardan Capital, LLC regarding administrative
                support10.10*
            
            Form
                of Promissory Note, dated April 11, 2005, issued to Kerry Propper
                and
                Chardan Capital Partners10.11*
            
            Registration
                Rights Agreement with the Initial
                Stockholders




*
      Incorporated by referenced from the registration statement on Form S-1 (Reg.
      No.
      333-125018).





ITEM
      14.
      PRINCIPAL ACCOUNTING FEES AND SERVICES.




The
      firm
      of Goldstein Golub Kessler LLP (“GGK”) acts as our principal accountant. Through
      September 30, 2005, GGK had a continuing relationship with American Express
      Tax
      and Business Services Inc. (TBS), from which it leased auditing staff who were
      full time, permanent employees of TBS and through which its partners provide
      non-audit services. Subsequent to September 30, 2005, this relationship
      ceased and the firm established a similar relationship with RSM McGladrey,
      Inc.
      (RSM). GGK has no full time employees and therefore, none of the audit services
      performed were provided by permanent full-time employees of GGK. GGK manages
      and
      supervises the audit and audit staff, and is exclusively responsible for the
      opinion rendered in connection with its examination.




The
      following table sets forth the aggregate fees billed to the Company for the
      fiscal years ended December 31, 2006 and December 31, 2005 by GGK, TBS and
      RSM:




**Fiscal
                2006**
            
            **Fiscal
                2005**Audit
                Fees (1)
            
            $
            39,000
            
            $
            29,000Audit-Related
                Fees (2)
            
            $
            —
            
            $
            —Tax
                Fees (3)
            
            $
            3,637
            
            $
            —All
                Other Fees
            
            $
            —
            
            $
            —Total
            
            $
            42,637
            
            $
            29,000




(1)
            
            Audit Fees consist of fees for professional
              services rendered for the audit of the Company’s consolidated annual
              financial statements and review of the interim consolidated financial
              statements included in quarterly reports and services that are normally
              provided by GGK in connection with statutory and regulatory filings
              or
              engagements.(2)
            
            Audit-Related Fees consist of fees for
              assurance and related services that are reasonably related to the
              performance of the audit or review of the Company’s consolidated financial
              statements and are not reported under “Audit Fees.”(3)
            
            Tax Fees consist of fees billed by RSM
              for
              professional services rendered for tax preparation
              services.




25




Chardan
      South China Acquisition Corporation


(a
      development stage company)




Report
                of Independent Registered Public Accounting Firm
            
            
            F-2Financial
                StatementsBalance
                Sheet
            
            
            F-3Statement
                of Income
            
            
            F-4Statement
                of Stockholders’ Equity
            
            
            F-5Statement
                of Cash Flows
            
            
            F-6Notes
                to Financial Statements
            
            
            F-7





F-1




**REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 
 To
        the
        Board of Directors
 Chardan
        South China Acquisition Corporation
 
 
 We
        have
        audited the accompanying balance sheets of Chardan South China Acquisition
        Corporation (a development stage corporation) (the “Company”) as of December 31,
        2006 and 2005, and the related statements of operations, stockholders’ equity
        and cash flows for the year ended December 31, 2006, the period from March
        10,
        2005 (inception) to December 31, 2005, and the cumulative period from March
        10,
        2005 (inception) to December 31, 2006. These financial statements are the
        responsibility of the Company’s management. Our responsibility is to express an
        opinion on these financial statements based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audits provide a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the financial statements referred to above present fairly, in all
        material respects, the financial position of Chardan South China Acquisition
        Corporation as of December 31, 2006 and 2005, and the results of its operations
        and its cash flows for the year ended December 31, 2006, the period from
        March
        10, 2005 (inception) to December 31, 2005, and the cumulative period from
        March
        10, 2005 (inception) to December 31, 2006 in conformity with United States
        generally accepted accounting principles.
 
 These
        financial statements have been prepared assuming the Company will continue
        as a
        going concern. As discussed in Notes 2 and 5 to the financial statements,
        the
        Company will face mandatory liquidation by August 10, 2007 if a business
        combination is not consummated. This raises substantial doubt about the
        Company’s ability to continue as a going concern. The financial statements do
        not include any adjustments that may result from the outcome of this
        uncertainty.
 
 **GOLDSTEIN
        GOLUB KESSLER LLP**
 New
        York,
        New York
 
 April
        2,
        2007
 
 F-2




**Chardan
      South China Acquisition Corporation**


**(A
      Development Stage Company)**


**Balance
        Sheet**
  December
                  31, 2006
              
              December
                  31, 2005ASSETSCurrent
                  assets:Cash
                  and cash equivalents
              
              $
              147,063
              
              $
              912,964Investments
                  held in trust
              
              
              31,294,931
              
              
              30,260,861Prepaid
                  expenses and other
              
              
              13,098
              
              
              48,333Total
                  current assets
              
              
              31,455,092
              
              
              31,222,158Long
                  term deferred tax asset
              
              
              235,333
              
              
              119,967Total
                  Assets
              
              $
              31,690,425
              
              $
              31,342,125LIABILITIES
                  AND STOCKHOLDERS' EQUITYCurrent
                  liabilities:Accounts
                  payable and accrued liabilities
              
              $
              103,056
              
              $
              53,253Taxes
                  payable
              
              
              204,913
              
              
              165,556Deferred
                  interest
              
              
              296,105
              
              
              86,395Total
                  current liabilities
              
              
              604,074
              
              
              305,204CommitmentsCommon
                  stock subject to possible conversion
              
              
              5,964,017
              
              
              5,964,0171,149,425
                  shares at conversion valueStockholders'
                  equity:Preferred
                  stock, $.0001 par value, 1,000,000
              
              
              -
              
              
              -shares
                  authorized, none issuedCommon
                  stock, $.0001 par value: 20,000,000
              
              
              700
              
              
              700shares
                  authorized, 7,000,000 shares issued and outstanding(includes
                  1,149,425 shares subject to possible conversion)Additional
                  paid-in capital
              
              
              25,003,435
              
              
              25,003,435Accumulated
                  earnings
              
              
              118,199
              
              
              68,769Total
                  stockholders' equity
              
              
              25,122,334
              
              
              25,072,904Total
                  Liabilities and Stockholders' Equity
              
              $
              31,690,425
              
              $
              31,342,125


The
      accompanying notes should be read in conjunction with the financial
      statements.




F-3




**Chardan
      South China Acquisition Corporation**


**(A
        Development Stage Company)**
 **Statements
        of Operations**
  From
              
              FromMarch
                  10, 2005
              
              March
                  10, 2005(Inception)
              
              (Inception)Year
                  Ended
              
              Through
              
              ThroughDecember
                  31, 2006
              
              December
                  31, 2005
              
              December
                  31, 2006Costs
                  and ExpensesAdmin
                  and office support
              
              
              90,000
              
              
              37,500
              
              
              127,500Consulting
              
              
              66,700
              
              
              -
              
              
              66,700Insurance
              
              
              63,319
              
              
              29,167
              
              
              92,486Professional
                  fees
              
              
              62,549
              
              
              34,475
              
              
              97,024State
                  franchise tax
              
              
              24,612
              
              
              23,500
              
              
              48,112Travel
              
              
              344,385
              
              
              77,844
              
              
              422,229Other
                  operating costs
              
              
              26,694
              
              
              31,069
              
              
              57,763Total
                  costs and expenses
              
              
              678,259
              
              
              233,555
              
              
              911,814Operating
                  loss
              
              
              (678,259
              )
              
              (233,555
              )
              
              (911,814
              )Other
                  income:Interest
                  income
              
              
              832,680
              
              
              347,913
              
              
              1,180,593Total
                  other income
              
              
              832,680
              
              
              347,913
              
              
              1,180,593Net
                  income before income tax provision
              
              
              154,421
              
              
              114,358
              
              
              268,779Provision
                  for income taxes
              
              
              104,991
              
              
              45,589
              
              
              150,580Net
                  income
              
              $
              49,430
              
              $
              68,769
              
              $
              118,199Income
                  per share - basic and diluted
              
              
              0.01
              
              
              0.02
              
              
              0.02Weighted
                  average shares outstanding - basic and diluted
              
              
              7,000,000
              
              
              3,978,049
              
              
              5,747,352




The
        accompanying notes should be read in conjunction with the financial
        statements.




F-4




**Chardan
      South China Acquisition Corporation**


**(A
      Development Stage Company)**


**Statements
      of Changes in Stockholders' Equity**


CommonShares
              
              Amount
              
              Additional
                  Paid-In Capital
              
              Accumulated
                  Earnings
              
              Stockholders'
                  Equity(Deficit)Balance
                  at March 10, 2005 (Inception)
              
              
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -Issuance
                  of common shares to initial shareholders at $0.02 per
                  share
              
              
              1,250,000
              
              
              125
              
              
              24,875
              
              
              
              
              
              25,000Sale
                  of 5,750,000 units, net of underwriters' discount and offering
                  expenses
                  (includes
                  1,149,425 shares subject to possible conversion)
              
              
              5,750,000
              
              
              575
              
              
              30,942,477
              
              
              
              
              
              30,943,052-Proceeds
                  subject to possible conversion of 1,149,425 shares
              
              
              
              
              
              
              
              
              (5,964,017
              )
              
              
              
              
              (5,964,017
              )Proceeds
                  from issuance of an underwriter's option
              
              
              
              
              
              
              
              
              100
              
              
              
              
              
              100Income
                  for the year ended December 31, 2005
              
              
              
              
              
              
              
              
              
              
              
              68,769
              
              
              68,769Balance
                  at December 31, 2005
              
              
              7,000,000
              
              $
              700
              
              $
              25,003,435
              
              $
              68,769
              
              $
              25,072,904Income
                  for the year ended December 31, 2006
              
              
              
              
              
              
              
              
              
              
              
              49,430
              
              
              49,430Balance
                  at December 31, 2006
              
              
              7,000,000
              
              
              700
              
              
              25,003,435
              
              $
              118,199
              
              $
              25,122,334




The
      accompanying notes should be read in conjunction with the financial
      statements.




F-5




**Chardan
        South China Acquisition Corporation**
 **(A
        Development Stage Company)**
 **Statements
        of Cash Flows**
  From
              
              FromMarch
                  10, 2005
              
              March
                  10, 2005(Inception)
              
              (Inception)Year
                  Ended
              
              Through
              
              ThroughDecember
                  31, 2006
              
              December
                  31, 2005
              
              December
                  31, 2006Cash
                  Flows from Operating Activities:Net
                  income
              
              $
              49,430
              
              $
              68,769
              
              $
              118,199Adjustments
                  to reconcile net income to net cash used
                  in operating activities:Amortization
                  of discounts and interest earned on securities held in
                  trust
              
              
              (1,034,069
              )
              
              (425,861
              )
              
              (1,459,930
              )Changes
                  in operating Assets and Liabilities:Prepaid
                  expenses and other current assets
              
              
              35,235
              
              
              (48,333
              )
              
              (13,098
              )Deferred
                  tax asset
              
              
              (115,366
              )
              
              (129,328
              )
              
              (244,694
              )Accounts
                  payable and accrued liabilities
              
              
              49,802
              
              
              53,253
              
              
              103,055Taxes
                  payable
              
              
              39,357
              
              
              174,917
              
              
              214,274Deferred
                  interest
              
              
              209,710
              
              
              86,395
              
              
              296,105Net
                  cash used in operating activities
              
              
              (765,901
              )
              
              (220,188
              )
              
              (986,089
              )Cash
                  Flows from Investing Activities:Purchases
                  of investments held in trust
              
              
              -
              
              
              (29,835,000
              )
              
              (29,835,000
              )Net
                  cash used in investing activities
              
              
              -
              
              
              (29,835,000
              )
              
              (29,835,000
              )Cash
                  Flows from Financing ActivitiesProceeds
                  from issuance of common stock
              
              
              -
              
              
              34,525,000
              
              
              34,525,000Proceeds
                  from issuance of option
              
              
              -
              
              
              100
              
              
              100Payment
                  of costs associated with public offering
              
              
              -
              
              
              (3,556,948
              )
              
              (3,556,948
              )Net
                  cash provided by financing activities
              
              
              -
              
              
              30,968,152
              
              
              30,968,152Net
                  increase in cash and cash equivalents
              
              
              (765,901
              )
              
              912,964
              
              
              147,063Cash
                  and cash equivalents, beginning of the period
              
              
              912,964
              
              
              -
              
              
              -Cash
                  and cash equivalents, end of the period
              
              $
              147,063
              
              $
              912,964
              
              $
              147,063
  The
          accompanying notes should be read in conjunction with the financial
          statements.
  Cash
                  paid for taxes
              
              $
              181,800
              
              $
              -
              
              $
              181,800Cash
                  paid for interest
              
              $
              -
              
              $
              -
              
              $
              -




F-6




CHARDAN
        SOUTH CHINA ACQUISITION CORPORATION
 (a
        development stage company)
 NOTES
        TO
        THE FINANCIAL STATEMENTS


1. SUMMARY
      OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES





Business
      and Organization -
      Chardan South China Acquisition Corp. (“Chardan South” or the “Company”) was
      incorporated in Delaware on March 10, 2005 as a blank check company whose
      objective is to acquire an operating business that has its primary operating
      facilities in the People Republic of China in any city or province south of
      the
      Yangtze River.





Effective
      July 14, 2005, the Company's Board of Directors and Initial Stockholders
      authorized an amendment to the Company's Certificate of Incorporation to change
      the Company's name from Chardan China Acquisition Corp. III to Chardan South
      China Acquisition Corporation.





In
      August
      2005, Chardan South commenced its efforts to locate a company with which to
      effect a business combination. After signing a definitive agreement for the
      acquisition of a target business, such transaction will be submitted for
      stockholder approval. In the event that stockholders owning 20% or more of
      the
      outstanding stock excluding, for this purpose, those persons who were
      stockholders prior to the Offering, vote against the Business Combination and
      exercise their conversion rights described below, the Business Combination
      will
      not be consummated. All of the Company's stockholders prior to the Initial
      Public Offering, including all of the officers and directors of the Company
      ("Initial Stockholders"), have agreed to vote their 1,250,000 founding shares
      of
      common stock in accordance with the vote of the majority in interest of all
      other stockholders of the Company ("Public Stockholders") with respect to the
      Business Combination. After consummation of the Business Combination, all of
      these voting safeguards will no longer be applicable. With respect to a Business
      Combination which is approved and consummated, any Public Stockholder who voted
      against the Business Combination may demand that the Company convert his shares.
      The per share conversion price will equal the amount in the Trust Fund as of
      the
      record date for determination of stockholders entitled to vote on the Business
      Combination divided by the number of shares of common stock held by Public
      Stockholders at the consummation of the Offering. Accordingly, Public
      Stockholders holding 19.99% of the aggregate number of shares owned by all
      Public Stockholders may seek conversion of their shares in the event of a
      Business Combination.





Such
      Public Stockholders are entitled to receive their per share interest in the
      Trust Fund computed without regard to the shares held by Initial Stockholders.
      Accordingly, a portion of the net proceeds from the offering (19.99% of the
      amount originally held in the Trust Fund) has been classified as common stock
      subject to possible conversion in the accompanying balance sheet and 19.99%
      of
      the related interest earned on the investments held in the Trust Fund has been
      recorded as deferred interest.





Cash
      and Cash Equivalents -- The
      Company considers all highly liquid debt securities purchased with original
      or
      remaining maturities of three months or less to be cash
      equivalents.





Fair
      Value of Financial Instruments - The
      carrying amounts of cash and cash equivalents, investments held in trust,
      accounts payable and accrued liabilities approximate fair market value because
      of the short maturity of those instruments.





Credit
      Risk - It is
      the Company’s practice to place its cash equivalents in high quality money
      market securities or certificate of deposit accounts with one major banking
      institution. Certain amounts of such funds are not insured by the Federal
      Deposit Insurance Corporation. However, the Company considers its credit risk
      associated with cash and cash equivalents to be minimal.





Investments
      Held in Trust -
      Investments held in trust are invested in United States government securities
      with a maturity of 180 days or less which are accounted for as a trading
      security and recorded at market value which approximates amortized cost. The
      excess of market value over cost, exclusive of deferred interest, is included
      in
      interest income in the accompanying Statement of Operations.





Deferred
      Interest -
      Deferred interest consists of 19.99% of the interest earned on the investments
      held in trust, which is the maximum amount of interest the Company would be
      obligated to pay to stockholders who elected to redeem their stock without
      resulting in a rejection of the Business Combination.





Income
      Taxes - The
      Company uses the asset and liability method of accounting for income taxes
      as
      required by SFAS No. 109 “Accounting for Income Taxes”. SFAS No. 109 requires
      the recognition of deferred tax assets and liabilities for the expected future
      tax consequences of temporary differences between the carrying amounts and
      the
      tax basis of certain assets and liabilities. Statutory taxes not based on income
      are included in general and administrative expenses.




F-7




CHARDAN
        SOUTH CHINA ACQUISITION CORPORATION
 (a
        development stage company)
 NOTES
        TO
        THE FINANCIAL STATEMENTS
  Accounting
        estimates - The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America requires management to
        make
        estimates and assumptions that affect the reported amounts of assets and
        liabilities at the date of the financial statements and the reported amounts
        of
        expenses during the reporting period. Actual results could differ from those
        estimates.





Income
      (Loss) Per Common Share - The
      Company computed basic and diluted loss per share amounts for December 31,
      2005
      pursuant to SFAS No. 128, “Earnings per Share.” Basic earnings per share (“EPS”)
      are computed by dividing the net income (loss) by the weighted average common
      shares outstanding during the period. Diluted EPS reflects the additional
      dilution for all potentially dilutive securities such as stock warrants and
      options. The effect of the 11,500,000 outstanding warrants, issued in connection
      with the initial public offering described in Note 5 has not been considered
      in
      the diluted EPS since the warrants are contingently exercisable. The effect
      of
      the 250,000 units included in the underwriters purchase option, as described
      in
      Note 5, along with the warrants underlying such units, has not been considered
      in the diluted EPS calculation since the effect would be
      antidilutive.




Reclassifications - For
        comparability, certain 2005 amounts have been reclassified, where appropriate,
        to conform to the financial statement presentation used in
        2006.





Recent
      Authoritative Pronouncements




In
      June
      2006, the FASB issued FASB Interpretation No. (FIN) 48, *Accounting
      for Uncertainty in Income Taxes—An Interpretation of FASB Statement No.
      109* ,
      which
      prescribes a recognition threshold and measurement attribute for the financial
      statement recognition and measurement of a tax position taken or expected to
      be
      taken in a tax return. FIN 48 will be effective for the Company’s fiscal year
      2007. The Company has not yet evaluated the potential impact of adopting FIN
      48
      on its consolidated financial statements.





The
      Company does not believe that any other recently issued but not yet effective
      accounting standards will have a material effect on the Company’s financial
      position or results of operations.





2. GOING
      CONCERN





These
      financial statements have been prepared assuming that the Company will continue
      as a going concern. As discussed in Note 5, the Company faces mandatory
      liquidation on August 10, 2007 if it has not consummated a business combination.
      This raises substantial doubt about the Company’s ability to continue as a going
      concern. The financial statements do not include any adjustments that may result
      from the outcome of this uncertainty.





3. RELATED
      PARTY TRANSACTIONS





Commencing
      on August 2, 2005 and ending upon the acquisition of a target business, the
      Company incurs an administrative fee of $7,500 per month from Chardan Capital,
      LLC, a company managed and partially owned by the Company's Chairman of the
      Board. The fee includes the provision of office space and certain office and
      secretarial services. The statement of operations for the periods ended December
      31, 2006 and 2005 includes $90,000 and $37,500, respectively, of such fees.





In
      April
      2005, two of the Company's stockholders advanced an aggregate of $80,000 to
      the
      Company, on a non-interest bearing basis, for payment of offering expenses
      on
      the Company's behalf. These loans were repaid following the initial public
      offering from the proceeds of the Offering.







F-8




CHARDAN
        SOUTH CHINA ACQUISITION CORPORATION
 (a
        development stage company)
 NOTES
        TO
        THE FINANCIAL STATEMENTS






4.  INCOME
        TAXES
 
 Components
        of income taxes are as follows:
 
 Year
                  ended
                December
                  31, 2006
              
              Period
                  ended
                December
                  31, 2005CurrentFederal
              
              $
              129,627
              
              $
              128,816State
              
              
              90,730
              
              
              36,740Total
                  Current
              
              
              220,357
              
              
              165,556Less
                  deferred income taxes
              
              
              (115,366
              )
              
              (119,967
              )Total
                  income taxes
              
              $
              104,991
              
              $
              45,589
 
 
 The
        Deferred tax asset consists of the following:
 
 December
                  31,
                2006
              
              December
                  31,
                2005Deferred
                  interest income
              
              
              78,347
              
              
              36,328Deferred
                  operating costs
              
              
              335,817
              
              
              86,639Deferred
                  transaction fees
              
              
              3,984
              
              
              -418,148
              
              
              119,967Valuation
                  allowance
              
              
              (182,815
              )
              
              -$
              235,333
              
              $
              119,967
 
 
 The
        effective tax rate differs from the statutory rate due to the
        following:
 
 Year
                  ended
                December
                  31,
                2006
              
              Period
                  ended
                December
                  31,
                2005Federal
                  statutory rate
              
              
              34.0
              %
              
              34.0
              %Valuation
                  allowance
              
              
              118.4
              %
              
              -Tax
                  free interest, net of deferred interest
              
              
              -112.6
              %
              
              -State
                  rate, net of federal benefit
              
              
              20.7
              %
              
              5.90
              %Permanent
                  book/tax differences
              
              
              2.3
              %
              
              -Other
              
              
              5.2
              %
              
              -Effective
                  income tax rate
              
              
              68.0
              %
              
              39.9
              %







5. COMMON
      STOCK, COMMON STOCK PURCHASE WARRANTS AND OPTIONS





On
      August
      10, 2005, the Company sold 5,000,000 units ("Units") in the initial public
      offering (“Offering”). )n August 17, 2005, the Company consummated the closing
      of an additional 750,000 units that were subject to the over-allotment option.
      Gross proceeds from the initial public offering were $34,500,000. The Company
      paid a total of $3,035,000 in underwriting discounts and commissions, and
      approximately $521,948 was paid for costs and expenses related to the offering.
      After deducting the underwriting discounts and commissions and the offering
      expenses, the total net proceeds to the Company from the offering was
      approximately $30,943,000, of which $29,835,000 was deposited into in an
      interest bearing trust account until the earlier of the consummation of a
      business combination or the liquidation of the Company. The Company's
      Certificate of Incorporation provides for mandatory liquidation of the Company,
      without stockholder approval, in the event that the Company does not consummate
      a Business Combination prior to August 10, 2007. In the event of liquidation,
      it
      is likely that the per share value of the residual assets remaining available
      for distribution (including Trust Fund assets) will be less than the initial
      public offering price per share in the Offering due to costs related to the
      Offering and since no value would be attributed to the Warrants contained in
      the
      Units sold.




F-9




CHARDAN
        SOUTH CHINA ACQUISITION CORPORATION
 (a
        development stage company)
 NOTES
        TO
        THE FINANCIAL STATEMENTS


Each
      Unit
      consisted of one share of the Company's common stock, $.0001 par value, and
      two
      Redeemable Common Stock Purchase Warrants ("Warrants"). Each Warrant entitles
      the holder to purchase from the Company one share of common stock at an exercise
      price of $5.00 commencing the later of the completion of a Business Combination
      or one year from the effective date of the Offering and expiring four years
      from
      the effective date of the Offering. The Warrants will be redeemable, at the
      Company's option, at a price of $.01 per Warrant upon 30 days' notice after
      the
      Warrants become exercisable, only in the event that the last sale price of
      the
      common stock is at least $8.50 per share for any 20 trading days within a 30
      trading day period ending on the third day prior to the date on which notice
      of
      redemption is given.





In
      connection with this Offering, the Company issued an option, for $100, to the
      representative of the underwriters to purchase 250,000 Units at an exercise
      price of $7.50 per Unit. The Company accounted for the fair value of the option,
      inclusive of the receipt of the $100 cash payment, as an expense of the public
      offering resulting in a charge directly to stockholders' equity. The Company
      estimated that the fair value of this option is approximately $550,000 ($2.20
      per Unit) using a Black-Scholes option-pricing model. The fair value of the
      option granted to the Representative is estimated as of the date of grant using
      the following assumptions: (1) expected volatility of 44.5%, (2) risk-free
      interest rate of 3.8% and (3) expected life of 5 years. The option may be
      exercised for cash or on a "cashless" basis, at the holder's option, such that
      the holder may use the appreciated value of the option (the difference between
      the exercise prices of the option and the underlying warrants and the market
      price of the units and underlying securities) to exercise the option without
      the
      payment of any cash. In addition, the warrants underlying such Units are
      exercisable at $6.65 per share.




6. STOCK
      DIVIDEND





Effective
      July 22, 2005, the Company's Board of Directors authorized a stock dividend
      of
      0.25 shares of common stock for each outstanding share of common stock. All
      references in the accompanying financial statements to the number of shares
      of
      common stock have been retroactively restated to reflect this
      transaction.





7. SUBSEQUENT
      EVENTS


On
        April
        14, 2007, the Company entered into a stock purchase agreement to acquire
        all of
        the issued and outstanding ordinary shares of Head Dragon Holdings, Limited,
        which owns a controlling interest in Liaoning GaoKe Energy Group (“GaoKe”).
        GaoKe is a provider of distributed power generation and micro power grids
        in
        China. There remain several conditions to the closing of the transaction
        to
        acquire GaoKe, including, but not limited to, the issuance of a final audit
        report showing earnings for the fiscal year ended 2006 of not less than $6
        million, as well as the customary conditions regarding the accuracy of
        representations and warranties and deliveries to be made. Other conditions
        include the approval of the Company’s stockholders of an amendment to its
        certificate of incorporation allowing it to enter into a business combination
        with a company with principal operations north of the Yangtze River and approval
        by the Company’s stockholders of the transaction itself.
 
 Under
        the
        agreement with Mr. Lv Jin Xiang, the sole shareholder of Head Dragon Holdings,
        Limited, the Company will acquire all of his stock in exchange for 13,000,000
        of
        the common shares of the Company’s merger subsidiary, China Energy Technology,
        Limited (“CETL”), a British Virgin Islands company formed for the purpose of
        changing the Company’s domicile from Delaware to the British Virgin Islands.
 
 As
        additional purchase price, the holders of the Head Dragon ordinary shares
        will
        be issued, on an all or none basis each year, an aggregate of 9,000,000 ordinary
        shares of CETL, as set forth below, if on a consolidated basis CETL has net
        operating profits on a U.S. GAAP basis of the following amounts for the
        indicated fiscal years ending December 31:
  Fiscal
                  Year
              After-Tax
                  Profit
              Number
                  of Shares2007
              $14,000,000
              1,000,0002008
              $19,000,000
              1,000,0002009
              $29,000,000
              1,000,0002010
              $44,000,000
              2,000,0002011
              $63,000,000
              2,000,0002012
              $87,000,000
              2,000,000


F-10




SIGNATURES




Pursuant
      to the requirements of the Section 13 or 15 or 15(d) of the Securities Exchange
      Act of 1934, the registrant has duly caused this report to be signed on its
      behalf by the undersigned, thereunto duly authorized on this 16th day of April
      2007.




CHARDAN
              SOUTH
              CHINA ACQUISITION CORPORATIONBy:
            /s/ Kerry
              PropperKerry
              PropperChief
                Executive Officer




In
      accordance with the Securities Exchange Act of 1934, this report has been signed
      below by the following persons on behalf of the registrant and in the capacities
      and on the dates indicated.





Signature
            
            Title
            
            Date/s/
                Jiangnan Huang
            
            Chairman
                of the Board of Directors
            
            April
                16, 2007Jiangnan
                Huang/s/
                Kerry Propper
            
            Chief
                Executive Officer and Director
            
            April
                16, 2007Kerry
                Propper
            
            (principal
                executive officer)/s/
                Dr. Richard D. Propper
            
            Chief
                Financial Officer, Secretary and Director
            
            April
                16, 2007Dr.
                Richard D Propper
            
            (principal
              accounting officer)/s/
                Li Zhang
            
            Executive
                Vice President and Director
            
            April
                16, 2007Li
                Zhang